Blog

1st Mar 2016

Heating oil prices: When’s the best time to buy?

heating oil diagram

One of the questions we are asked repeatedly is: when is the right time to buy heating oil? Of course, price is a big consideration when ordering your next supply, so what should you keep in mind? Is there a better time during the year? Or is it simply the luck of the draw?

Prices have dropped of late. A journalist for one national newspaper recently reported how buying 900 litres in January 2016 had cost £345 less than it had done three years previously. However, we know that prices fluctuate – having been in the heating oil business for many years, we’ve seen many peaks and troughs. That said, as a trusted supplier of fuel to thousands of households across the UK, we feel that we can speak with some authority on the subject of when to buy it, so here’s our advice:

What influences oil prices

It’s important to understand what governs oil prices, as much of it is out of the distributors’ hands. The price of oil is influenced by several domestic and global factors, some which there is no control over at all. Bearing these factors in mind can help you make a far more financially advantageous oil purchase.

Oil futures and the price of crude oil

UK prices are determined by the global base price of crude oil, which is in turn determined by traders who buy oil futures contracts. This is where an oil producer agrees to sell fuel to a buyer at a contractually binding, predefined date in the future. Most transactions are from traders known as ‘hedgers’ – those who want to guarantee against rising prices in months to come, such as airlines. Futures prices are influenced by market sentiment, which is the belief of what might happen to oil prices. If sentiment is that prices will rise, then many hedgers will jump on the proverbial bandwagon by bidding on contracts and pushing demand up. The opposite occurs when sentiment is perceived as low.

Supply

The futures prices are set depending on supply, particularly that which derives from the USA. Shale production (fracking) has seen the amount of oil increase, but has resulted in a global glut. In fact, due to the sheer scale of shale production, the USA has now out-supplied Saudi Arabia to become the world’s biggest oil producer. While householders and traders alike are enjoying the ramifications of this oversupply of oil – i.e. low prices – this could be short lived.

OPEC, the Organisation of Petroleum Exporting Countries (which represents a large proportion of the world’s oil exports) would usually halt production to drive prices up. In the case of shale production, it is reportedly simply waiting for firms to go out of business, at which point oil supply will decrease and prices again can rise.

Demand

It goes without saying that in periods where demand is high, the price of oil will increase. Typically, we expect most people to buy oil coming into the colder months – the times when you need help heating the home. Hence we advise buying it in advance, when demand is low and the prices reflect that. Another phenomenon – as was recorded at the end of 2015 – is unseasonably warm weather, meaning that demand for heating oil isn’t as high, which results in a surplus which suppliers want to get rid of, at lower prices.

Oil field

When is the best time to buy heating oil, then?

This background is all very well, but when is the right time to buy? In reality, we can’t give you a specific date. The price of oil depends on too many external factors. However, to recap, you should ideally buy at a time where there is a period of low demand, so when:

– There is a global oil production oversupply

– The climate is warm (summer) or experiencing unseasonable warmth

– The oil futures sentiment is that prices will decline (but be quick before trading activity bumps the prices up)

Another good time to buy, of course, is when you’re about to run out, though hopefully it won’t come to that!

How to reduce your heating oil costs

While heating oil remains one of the cheapest ways to warm the home, there are always other ways in which you can reduce your bills:

1. Buy in advance when the prices are low. Heating oil, when it’s stored correctly and contains the correct additives, can keep for up to two years.

2. Shop around for the best deals. We can say this confidently, as we know that our prices and our commitment to providing the highest levels of customer service sets us apart from our competitors. Do your research, monitor trends and know what you should be paying so that you don’t spend above the odds!

3. Buy as a community. As a member of a local group you can secure more competitive prices when buying huge quantities. Search online for a community buying organisation in your local area.

4. Be more energy efficient around the home – see our tips to stay snug in the winter.

5. Make sure your tank is in good condition so that water and other materials cannot get in and break down the oil, or cause it to from leak.

6. Ensure your oil tank and storage facilities are adequately secured, to prevent any opportunists trying to steal your supply.

There are many factors which affect oil prices and consequently have an effect on when you should think about buying oil. However, if you can bear the above in mind, together with the points for reducing your heating oil costs, you should be able to significantly benefit from some serious savings. What’s more, you’ll have enough oil to keep your home toasty when you need it.

To get a heating oil quote or ask us a question, please get in touch on 0800 032 3865.

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