Final answer:
When the price of gasoline decreases, oil refiners might shift production towards heating oil, but if gasoline becomes more competitive, demand for heating oil may decrease, potentially leading to a lower price for heating oil too.
Step-by-step explanation:
If gasoline and heating oil are substitutes in production for an oil refiner, and the price of gasoline decreases, this typically leads to a situation where the refiner may shift production toward more heating oil, assuming the margin for profit on heating oil becomes more favorable. This is because as the gasoline price drops, consumers may demand more gasoline and less heating oil, causing a decrease in the heating oil price to stay competitive. However, if the lower gasoline price makes gasoline much more competitive against heating oil, heating oil producers might see a decrease in demand.
Moreover, as the price of gasoline falls, a surplus can occur, leading to an accumulation of gasoline which puts pressure on sellers to reduce prices. In an effort to avoid losses, sellers will lower prices to stimulate a higher quantity demanded. The incentives built into the demand and supply structure will create pressures for the price to fall toward the equilibrium. If producers and sellers begin to cut prices, a similar effect might be expected in the market for heating oil as both products are related in terms of production and consumption.