In our last blog post regarding the Organisation of the Petroleum Exporting Countries, OPEC, we covered the outcome of their Nov 30th 2016 meeting: a global cut in crude oil production of 1.8 million barrels per day in an effort to increase prices.
Initial Success; What’s Changed?
Initially both crude and heating oil prices saw a dramatic increase. From Nov 29th 2016 to Mar 7th crude oil prices increased 20% to almost $55 p/barrel (source: fuelpricesonline.com), the average UK price of heating oil meanwhile increased 8% to 41.4 pence per litre.
However, these higher prices have encouraged those not involved in the production cut, namely US shale producers, to increase their capacity. This had little effect for the first three months of this year, with crude trading in a tight range, but yesterday that all changed.
The market woke up to the possibility that US shale production could undermine OPECs efforts. In the US alone the rig count has increased 27%, from 593 on 23rd Nov 2016 to 756 by 3rd Mar 2017, and this has had a dramatic impact on the global market.
In just two days crude oil prices have fallen 8% to under $51 per barrel. An increase in US stocks of 8 million barrels in a week sent the market price tumbling.
Great News! But will it last?
Whilst this is bad news for oil producing countries, this is great news for heating oil users. Gradual decreases in the UK average price as warmer weather approaches could well be replaced by something more dramatic once the fall in crude oil is felt. But will the US keep producing more?
According to Tsvetana Paraskova of Oilprice.com, it’s not likely. With Donald Trump now in office, bringing a new multi-billion-dollar revenue plan with him, a high oil price is essential. This means there’s every chance President Trump will place a lot of pressure on US shale producers to slow down and help prop up the price of oil.
So the prices are unlikely to reach $60 per barrel anytime soon, but they’re also unlikely to continue to fall dramatically and will probably stabilise.
There are also hints OPEC want to work together with the US to stabilise the market with OPEC Secretary-General Mohammed Barkindo stating “We all belong to the same industry.”
So What Should The Heating Oil User Do?
So our advice to heating oil users? If you’re coming up to ordering your oil, keep a close eye on the price in your local area.
With the markets behaving as they are, the potential is there for a discerning shopper to take advantage. Don’t leave it too long though as prices are unlikely to fall much further, indeed prices have rebounded this morning as I write…