There has been a lot of comment today about remarks made by Ministers regarding the price of crude oil and its potential impact on the price of petrol. Of course the link between crude oil prices and petrol is equally applicable to heating oil – it’s regrettable that once again Government (and the Opposition) fail to make any statements about the impact of prices on heating oil users.
The BBC article makes for interesting reading. First it highlights that most of the cost of a litre of petrol is duty, indeed only about 25% of the price is the raw crude cost, this explains why significant fails in Crude prices may result in more modest falls in petrol prices. Then they refer to a speech Danny Alexander is to make in which he refers to “rock and feather” pricing. By this he means that prices rise as fast as a Rocket but float down as slowly as a Feather.
I understand the point he is making and share the view he has, but I don’t think it’s anything new. Look at the price movements in any commodity, it will show wide variations in a short period of time. With the issues in the Middle East and Russia causing concerns about energy supply, commodity traders have plenty of opportunity to play the fear factor into prices. We have all seen short term spikes in prices – in the case of heating oil up to 2ppl in a 48hr period. As most oil users buy only a few times a year it’s not necessarily short term movements that matter the most. Sure, no one wants to have to buy on a day when prices rise, but it can happen. Using Oil Buying Clubs can help mitigate the effect by helping achieve good value but even a club can’t stop the impact of a scare in the Middle East forcing prices up.
It’s the long term trends that are more relevant. A comparison of relative prices of Gold, Crude Oil and Wheat (from IG Index)over the last two years shows that all three have prices lower than two years ago, 20% in the case of crude.
So falling global demand for commodities is driving down prices across the board. Goldman Sachs are forecasting further reductions in Crude prices. We have to ask ourselves if these long term reductions have been fully reflected in the prices we pay for the fuel in our cars or our heating oil. For petrol the reduction in crude prices is less relevant as it only accounts for 25% of the product cost – for heating oil the link is much closer.
Mr Alexander may be right and prices do rocket up to only float down but that isn’t the real challenge for oil users.
It’s clear from the recent Club Orders we have processed that heating oil prices have fallen and the reduction from the peak of a year ago is significant. We are now seeing the lowest prices since 2010 when prices started a steep climb. The oil market is competitive, we see that every time a club order is tendered, the challenge for customers now is to know how much of a reduction to expect. In a rising market the concern is that we pay to much, it’s equally true in a falling market – are the savings we are getting enough?
Club ordering is a great solution to this dilemma. We can be confident that by working together we can get the best price available. Experienced Club Managers can also ensure they time orders to avoid the obvious pitfalls. Processing multiple clubs through the Oil Buying Club system gives us confidence that our broad base of suppliers can offer clubs great service and value. For Club members it means the price they pay and the service they get is the best available.
As todays observations by the political parties show, oil users are very much out in the cold. Working together helps more than any political statement.