OFTEC, the Oil Firing Technical Association has recently announced that the latest quarterly comparison of domestic heating costs from Sutherland tables shows that heating oil is the only primary heating fuel that has actually dropped in price over the last three years. This is great news for heating oil users who have, in the past, had to shoulder large rises in the cost of heating their homes. It means that the margin between gas, which is the cheapest, and heating oil has fallen significantly from 60% to just 12%.
Why Have Heating Oil Prices Dropped?
There are a number of factors that have contributed to lower heating oil prices including:
- The supply of oil on world markets has risen as a result of a dramatic increase in production from the US as fracking has taken hold and started to produce results.
- The world-wide slow-down in economies across the world in the last three to five years has meant demand for oil has been muted and hence prices have fallen.
- A mild winter 2013/2014 has meant demand for heating oil in the UK has been low.
- The announcement towards the end of 2013 of the Federal Reserve’s decision to start to reduce quantitative easing in the US signals that the dollar may start to rise in the near future and hence oil prices may fall.
- Initial talks with Iran over their nuclear program went well and have raised confidence that existing trade sanctions on the sale of oil may be lifted and thus increase supply.
Price Increases in Other Domestic Fuels
As OFTEC pointed out, the margin between oil and other domestic heating fuels has dropped considerably but this isn’t due to large drops in heating oil prices. What we have seen and the press has been quick to report is large increases in gas and electricity prices. The graph below clearly shows the significant rises in electricity and gas.
Data from Sutherland Tables based on comparison in price of heating a three bedroom home in January 2011 to January 2014.
Off Grid Users Still Pay More
Despite this good news for domestic oil users, heating oil is still more expensive than gas. For off-grid homes this does mean that in recent years, many home owners have looked at other renewable sources of energy, primarily heat pumps to supplement their heating and thus reduce consumption of heating oil. The main issue with this is that electricity is used to power heat pumps and, as this keeps rising in price, the benefits from of this form of renewable energy are eroded.
Will The Situation Continue?
There is little question that there is significant pressure on the gas and electricity companies to reduce bills. The change in green levies at the end of 2013 did lead to energy companies cutting recently announced rises but they were still well above the rate of inflation. With the Energy Secretary, Ed Davey, requesting a full investigation into the market, there could be significant changes ahead in the domestic energy market but, how this will impact on gas and electricity prices is questionable.
Heating oil in some ways is slightly easier to predict. The general consensus amongst the oil trading community at present is that oil prices will remain relatively steady and the average price may even be slightly lower than it was in 2013. However, as economic growth picks up in the West, demand is going to pick up which will drive prices higher. How much higher will depend largely on how much additional production the US brings on line, whether Iran starts exporting oil again and whether supply issues from Libya are resolved once and for all.
What’s the Best Advice for Heating Oil Users?
Heating oil users have one major benefit over gas customers in that they can pick and choose when to buy their oil. Careful monitoring of heating oil prices can help home owners make savings on their fuel and thus keep annual heating costs down.
If you are considering renewable energy sources such as heat pumps, you will need to research this thoroughly to ensure this is still going to give you savings. It may be worth looking into the efficiency of your oil boiler first as replacing an old, inefficient boiler could make you savings of around £300-£300 per year and an update in boiler controls could also provide savings.
Finally, heating oil users also use electricity so it is always advisable to shop around and make sure you are getting the best deal.
Find out more about this story:
Read the OFTEC press release: http://www.oftec.org/news_and_press_releases/oil-is-the-only-heating-fuel-where-prices-have-fallen
See the latest average UK heating oil prices:
Read about Ed Davey’s request to regulators into pricing from energy companies: