Everytime the indicator on your heating oil tank starts to flash, that moment of frustration returns again! Why didn’t I plan for this earlier. You vow to yourself that next time you’ll set a reminder on your phone, but the question is when should you set it for? When really is the best time to buy your home heating oil ?
Why do oil prices fluctuate?
When buying any utility; gas, oil or electricity we understand it can be a bit confusing. With the prices constantly changing it can seem a bit like a card game, and only naturally you want to make sure you make your move at the right time.
I mean how much easier would it be if you could buy oil like you do Milk at the shop!
So what is it that makes the pricing of heating oil seem so complicated and why does it fluctuate so much?
First off, oil is a commodity. By that we mean no matter which fuel company you choose, the heating oil that they get from the producer is pretty much the same. In contrast, when you buy a television each manufacturer will have its own version with different benefits for the customer.
Basically, kerosene is kerosene no matter where you get it from. (The premium kerosene is altered due to a cleaning additive rather than the original product itself being any different)
There is a limited supply of heating oil (kerosene) in storage at any one time; changes in supply and demand will therefore affect its stock levels. If demand is high but the stock is low, prices will be driven up by the producers.
What influences heating oil prices? 3 key global factors that change heating oil prices.
#1 Extreme Weather Influences
In the simplest of terms, if you are knee deep in snow you are going to need far more heating oil to keep your home warm than you are in the middle of summer. Therefore if we have a particularly bad winter – like the one in 2010 or 2018’s Beast from the East the demand for heating oil is going to be increased compared to normal. This therefore drives down the available stock so the price is increased.
#2 OPEC (Organisation of Petroleum Exporting Countries) raising or lowering production levels of crude oil.
You’ve probably heard this acronym on the news, but it is not until you have to buy heating oil that you realise the importance it has on your household expenses!
OPEC currently supplies 40% of the world’s crude oil and is a consortium of 14 countries including: Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria. Qatar, Saudi Arabia, United Arab emirates, Venezuela.
The OPEC member countries meet at least twice a year and decide collectively when to increase or decrease oil production in order to maintain stable prices and supply.
The membership was created to ensure an efficient and regular supply of petroleum to consumers, a steady income to producer and a fair return on capital for those investing.
The decision that they make bi-annually on crude oil production has a direct impact on the price you pay for heating oil.
For upto date market information, use the BBC oil market report
#3 Political unrest
Catching up on the News over breakfast you’re never sure what you’ll hear next.
Threats on or in oil producing countries means that production could be compromised in these areas. The supply of crude oil is therefore at risk so the market reacts by increasing the price.
The Middle East accounts for the lion’s share of the crude oil market. In the past, wars in Afghanistan and Iraq have created uncertainty causing people to panic about access to oil.
With Donald Trump, Vladimir Putin and Brexit on the table it’s hard to predict confidence in the market.
Heating oil prices; When is oil cheapest to buy?
All of the above is great to know but let’s cut to the chase, when is it best to buy oil?
As a rule of thumb though we’d suggest the cheapest price is available when:
- The weather is unseasonably warm
- There is a plentiful supply of global oil available, with little or minimal risk to supply
- Experts are predicting that prices will decline ( be quick here though as OPEC will likely react in order to control the rush of customers and demand on stock levels)