The wholesale price of home heating oil in the Washington area has dropped 18.3 cents a gallon since November, but the price paid by local homeowners has gone down only 9.9 cents a gallon, market surveys show.
Wider profit margins for heating oil distributors, continuing strong winter-season demand, and consumer reluctance to shop around are the primary reasons that heating oil prices for homeowners have remained high despite the big wholesale cuts, energy experts say.
Retail prices are expected to decline further in the spring or summer, however, as the arrival of warmer weather reduces consumer demand for heating oil.
One industry official predicts that retail prices here will decline another 5 to 8 cents a gallon if wholesale prices, pushed lower by the oversupply of crude oil on the world market, stay down as expected.
"They dealers don't want to drop their price, any more than OPEC wants to drop its price, but competition will make them do it," said Paul London, a Washington economist.
Meanwhile, dealer margins have been growing.
The margin, which represents the difference between what the dealer pays for heating oil and the price he charges homeowners, typically is 22 to 26 cents a gallon. Most of that goes to cover the delivery cost and the rest of the dealer's overhead. The balance is the net profit, which works out to an average of 2 to 3 cents a gallon before taxes.
But as wholesale prices have declined in recent weeks, dealers have been able to widen their margins to 30 cents a gallon or more and double their net profits to 5 or 6 cents a gallon.
"A dealer who purchased heating oil here for 85 cents a gallon two weeks ago could sell it now for $1.17 a gallon and make a margin of 32 cents a gallon and a net profit of 5 or 6 cents a gallon for a week or two," said Herb Triplett, senior vice president of marketing for Steuart Petroleum, a major fuel oil dealer in the Washington area
"But he can't do that all the time," Triplett said, because of the pressures of competition.
He said that East Coast dealers who now are making 30 cents a gallon may have made only 15 to 17 cents a gallon last fall. Such rollercoaster margins, Triplett said, have made it "a fair year in terms in profit. Not a great year and not a disastrous year like a year ago, when almost everyone lost a great deal of money, but just a fair year."
The response of the heating oil market to wholesale price drops has been much slower than the reaction of the gasoline stations. Prices at Washington-area gasoline pumps have dropped about 20 cents a gallon since January, 1982, according to the American Automobile Association's Potomac Division.
"That is in line with the wholesale price reductions for gasoline," said AAA representative Tom Crosby.
Energy economists agree that gasoline stations generally are more responsive to wholesale reductions because consumers have more options. A buyer "can compare one station's prices to another by driving around ; he hasn't as many options with heating oil," according to economist Larry Goldstein.
"And with heating oil, the consumer may pay a little more to be protected through the winter, so clearly there is less flexibility with heating oil," Goldstein added. "With gasoline, he may just be concerned with a fill-up. With heating oil, he may want an assured supply and service."
The economics of heating oil have been frustrating for homeowners, who know that wholesale prices are dropping and wonder why they are getting only a small piece of the decrease.
"When we heard that the price of oil would go down, our minds were thinking it would drop 10 to 15 cents a gallon, but that isn't what we got," said Fairfax City resident Roberta Lisker, who paid $1.19 a gallon for the heating oil delivered to her home last week--five cents less a gallon than she paid in November.
"Why do I think it hasn't come down more? Because we are the little person at the bottom and there are so many people in the middle, from the distributor on up the line," Lisker said. "They aren't going to give us more because it would mean less profits for them. So by the time the decrease gets to us, it has trickled down to be a few pennies."
Despite her disappointment over the price reductions, Lisker, who is a commercial travel agent, said that she and her husband plan to stay with the same heating oil distributor they have had since buying the house three years ago.
Good service and an assurance of a steady supply of fuel oil during the winter are the reasons she gives for their continued loyalty.
Heating oil customers in the metropolitan Washington area now use an estimated 200 million gallons of fuel each year. About 60 percent of this goes to homes and about 40 percent to businesses.
The amount used by the average heating oil customer has been declining steadily in recent months, largely because of conservation efforts.
The average amount used by a homeowner in the Washington-Baltimore area dropped from 1,175 gallons during the winter of 1978 to about 1,000 gallons this winter, according to an analysis by one local company. The forecast is for a decline to 800 gallons per winter by 1985.
The combination of conservation, conversion to natural gas, and price fluctuations has forced about 20 percent of the area heating oil distributors to go out of business or to merge with other companies over the past three years, according to the Mid-Atlantic Petroleum Distributors Association, a 200-member trade group that represents some 75 percent of the heating oil market here.
"An awful lot of them went out of business last year when prices fell and they had to sell oil at 10 cents a gallon less than they paid for it," said Triplett, whose company is a member of the association.
He said that the mild winter this year has reduced overall profits for distributors. "When you have a warm year, you don't make money," Triplett said. "There is just no way. Our sales at Steuart Petroleum are off 20 percent. The weather is about 13 percent of that; conservation is 7 percent."