A note of residential heating oil inventory policies

Abstract

The question whether present inventory policies of residential heating oil consumers are stable or likely to change as a result of higher oil prices or a shortage situation is investigated on the basis of a model which explains heating energy cost as a function of a consumer's tank capacity, the size of oil deliveries, his choice of a safety level of oil in his tank, and on the basis of data for Massachusetts. For the most common situation of a consumer who owns a 270 gallon tank and consumes 1000 to 2000 gallons per heating season, the result is: Unless the consumer expect substantial fluctuations in the price of oil to occur during each year throughout the depreciation period of the tank, there is little incentive to change the present inventory policy: One 270 gallon tank and the avoidance of policies which reduce the delivery size through partial fills or a large safety level, are stable policies.