At BoilerJuice we often get asked what we think prices will do over the next few months. Unfortunately, heating oil prices are notoriously difficult to predict, with dozens of factors affecting prices on a daily basis.
While we can’t promise a magic formula for predicting what will happen with heating oil prices in 2015, we do have a few tips to help you out. Check out the info below to learn what affects heating oil prices in the UK and work out how to spot upcoming trends.
Fluctuations in heating oil prices are often the result of a combination of several factors:
Weather is one of the main factors that affects heating oil prices in the UK. Generally, when temperatures drop, people use their heating more. This can result in a sudden surge in demand for heating oil, which causes prices to spike.
Cold weather also puts more pressure on Suppliers, as it is difficult to manoeuvre delivery tankers in ice or snow. This can cause delivery issues which can drive up the Supplier’s transportation costs.
On the other hand, during warm months there is less demand for heating oil and supply is plentiful so prices tend to decrease. For this reason, a lot of heating oil users choose to stock-up on their heating oil when temperatures are high and prices are low.
WARNING: Extreme weather conditions can affect prices very quickly, so it’s a good idea to keep an eye on weather forecasts and order early when possible.
Supply & Demand
As with any commodity, supply and demand plays a very big part in heating oil pricing. If demand soars when supplies are low, this puts a lot of financial pressure on Suppliers, who are forced to purchase emergency supplies at a higher price. This can also happen if oil production is cut during a period of high demand, as it will be difficult for Suppliers to source their oil.
On the other hand, during times of low demand (for example, during summer, when there is not as much need for heating oil), prices often drop. This can also happen if there are a large number of heating oil suppliers in your local area, as competition can drive down prices.
Heating oil is a by-product of crude oil, and as such, needs to be broken down and processed before it can be used. This procedure is called distillation and is carried out at an oil refinery. Although Kerosene is one of the easiest (and therefore the cheapest) oil products to distil from crude, there are several factors that can affect the cost of this process. Changes in personnel, equipment, taxes or transportation fees for the companies that carry out this procedure can ultimately affect how much you pay for your heating oil on a domestic level.
Distribution and Delivery Costs
As Suppliers do not produce their own oil, they need to source their supply from the nearest refinery or oil storage facility. There are only a few refineries in the UK, so many suppliers have to travel a considerable distance to collect oil before distributing it to their customers.
As many heating oil users live in remote, rural areas, this can also affect delivery costs, as the tankers have to travel further to get there. However, most suppliers make a conscious effort to reduce these costs, and many even offer a bulk-buy saving to customers who order on the same day in the same area, as this means that the delivery tanker can deliver these orders in one go rather than travelling back and forth over a number of days.
Currency Exchange Rates
As oil is sold in US Dollars, currency exchange rates have a big effect on the price of heating oil in the UK. If the exchange rate between British Pounds and US Dollars shifts, it could affect how much suppliers are paying for their supply, which in turn would affect domestic heating oil prices across the UK.
TIP: As currency rates can be influenced by many things (including political and economic events), it is a good idea to regularly check the market and keep an eye out for changes.
VAT (also known as value-added tax) is a form of consumption tax that is added to many of the things we use in day-to-day life. Currently, domestic heating oil has a reduced VAT rate of 5%, while heating oil that is used for business purposes (e.g. for agriculture or construction) is generally subject to a standard VAT rate of 20%. The last VAT shift was in January 2011 (from 17.5% to 20%), but if it rises again in the future this could affect heating oil prices.
Crude Oil Prices
As heating oil is a by-product of crude oil, changes in the crude oil market have a huge influence on heating oil prices. If the barrel price of crude increases or decreases, this directly influences how much suppliers will have to pay for their oil supply, which in turn affects the cost of heating oil.
OPEC (Organization of the Petroleum Exporting Countries), is an international organization made up of several prominent oil-producing countries. As a large portion of the world’s crude oil reserves are controlled by these countries, this organisation has the ability to influence the production of oil, which can affect supply levels and prices on a global scale.
For example, if OPEC decided to drop their prices to undercut gas rates, there would be a surplus of oil at a low price. On the other hand, if they stopped oil production over a peak period when demand was high, suppliers may struggle to source their oil and heating oil prices could increase.
Did You Know?: OPEC currently consists of Iraq, Kuwait, Iran, Saudi Arabia, Venezuela, Libya, United Arab Emirates, Qatar, Algeria, Nigeria, Ecuador, and Angola.
Conflict in Oil-producing Countries
As crude oil prices have a large influence on heating oil prices, anything that causes those prices to increase can result in higher heating oil costs for customers in the UK. This includes anything that may impact the production or transportation of oil supplies, such as war, conflict, oil spills or natural disasters.
What to Look out For: Any major disruption in countries related to OPEC, as well as other oil-producing countries such as Norway, China, Russia, Mexico, Brazil, Canada and the US.
Find out more about heating oil prices in the UK on our Price Chart Page.
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