The American and Israeli attacks on Iran and Lebanon have sent markets around the world into turmoil and triggered significant energy price rises. Heating oil has been particularly badly affected. Here we explore why that has happened, what it means for our industry, and what advice you need to give your customers.
The American and Israeli attacks on Iran and Lebanon have sent markets around the world into turmoil and triggered significant energy price rises.
Heating oil is more prone to sudden price fluctuations than other fuels because fuel distributors often have limited storage capacity, making them vulnerable to sudden wholesale fuel price changes. Heating oil is very similar to jet fuel and because of limited refinery capacity in Europe, a relatively high proportion of this fuel comes from the Gulf States, so the price has risen more than crude oil.
Anyone needing to buy fuel since the start of the conflict will have seen significant price rises to over £1.00 per litre. However, less fuel is used during the summer and, because users have their own fuel storage, most have at least some protection from the price increases.
How long the crisis will last is impossible to predict, but it may continue for some months, and potentially into the next heating season. Even if the conflict has stopped, the knock-on effects will mean that prices are likely to be higher next winter than last year.
The UK Government has announced over £50 million in support for vulnerable oil heated households, through a new Crisis Resilience Fund, which came into effect in April. £17 million has been allocated to Northern Ireland, England will receive £27 million, Scotland £4.6 million and Wales £3.8 million. The Scottish Government has topped up its fund to £10 million. Each country is distributing the funding differently, so look out for announcements specific to your location.
Many will wish to wait in the hope that prices will fall. If your customers still have some fuel, it may make sense to wait until prices are potentially more favourable. However, the advice from fuel distributors, UKIFDA, is not to wait until the last moment when the tank is almost empty before re-ordering. It’s also worth remembering that as the new heating season approaches, demand will increase and prices could rise. If your customers do need to refill, then the best advice is to shop around for the best deal. Many fuel distributors also offer priority schemes to help vulnerable customers.
It’s often assumed that heating oil is always an expensive fuel. However, the graph below, which shows the annual average cost of heating fuels, calculated quarterly for a typical three bedroomed home, demonstrates this is incorrect. It is the age and method of construction of rural homes – which limits their energy efficiency – that largely accounts for the higher running costs oil heating customers sometimes face.
Despite significant price spikes caused by the Covid crisis and war in Ukraine, based on the quarterly data over the last six years, the average annual cost of heating oil is the lowest of the four heating options compared.
The price of fuels such as HVO have been more stable than fossil fuels and the typical cost has risen broadly in line with diesel. This strengthens the case for the introduction of these fuels because they can help to ensure more stable prices for consumers.
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