Highs and lows of the oil price drop

The dramatic fall in oil prices in April 2020 will go down in history, and whilst it was bad news for the industry, it provided welcome financial relief to households fuelled by heating oil.
As the first wave of the Coronavirus spread across the globe, forcing the majority of the world into lockdown, the demand for fuel fell off a cliff, resulting in a surplus to demand and a requirement to cut production in order to stabilise prices.

The impact on the industry is significant. In the UK alone, it has been warned that 30,000 jobs in the gas and oil sector could be lost, with oil prices falling to their lowest in two decades.

But, despite the global crash in demand for fuel – most significantly from motorists and the airline industry – Valero insists it is business as usual at its Pembrokeshire oil refinery, which employs about 1,200 workers.

A spokesperson said: “While we have previously shared that some of our gasoline-producing units have been temporarily idled, the guidance we provided for second quarter 2020 is our system running at about 70% capacity. We are not considering employee layoffs or furloughs.”

Whilst the industry was dealing with the negative impacts, households using heating oil saw their bills reduce by as much as 75%, leading to a surge in orders for distributors across the country.

Stocking up
With around 1.5 million homes in the UK not connected to the main gas supply, and therefore relying on heating oil, the sudden price drop meant that many households were purchasing extra oil to store, before the prices inevitably began to climb once more.

There are reports from suppliers of customers buying extra tanks to store the cheap fuel, suggesting that many are following expert advice to take advantage of prices falling from 54p per litre in January to below 20p in recent weeks.

Andrew Cooper, commercial manager at Certas, said; “Normally at this time of year a lot of customers top up their tanks, but at the moment they are filling up completely.”

Malcolm Farrow of OFTEC agreed that, with prices so low, it was a “really good time to fill up”, but also predicts a slight rebound in prices over the coming months.

A small positive
A spokesperson from Wrexham based Quad Fuels, said the fall in price was a “small positive in difficult times” and predicted that a recovery of the market would take “several months”.

For Lloyd Thomas, who runs a fuel club in Newcastle Emlyn, Carmarthenshire, April’s order was £1,200 cheaper than in March for its 200 members who buy oil collectively in order to save money. But the worry over prices rising after lockdown eases is lingering. When discussing oil prices, Mr Thomas said; “They’re already starting to creep back up now in the last month. For older people it’s hard – we’re still in poverty – there’s a lot of people who can’t afford it as it is.”

Less benefit
Although many using heating oil have benefitted financially from the falling price, LPG users and those filling up their cars with fuel have not benefitted quite so well.

The AA has claimed that motorists are being ‘ripped off’ by petrol companies not passing on cheaper oil prices to the pump, although government figures suggest that a litre of unleaded petrol fell from 127p in January to 107p and the perceived bonanza in increased margin is against a backdrop of heavily depressed sales volumes. At worst throughput has been 60-70% down and, currently, is around one third reduced.

Malcolm Farrow also suggests that users of LPG for central heating have not benefited as much from cheaper crude oil “because they are locked into longer-term contracts,”
“As they renew their contracts, they’ll get a better deal if the LPG suppliers think prices are likely to stay low for a period.
“But with LPG, particularly if you’ve got a larger tank, it’s usually owned by the supplier, so changing supplier is not quite so straightforward.”

The future of oil
Whilst the industry waits for the outcome of the pandemic on the economy, like everyone else, Carol Bell, an industry expert highlights the ongoing challenge; “There was already a global conversation about the future of oil, as concern grows about climate change.”

“Add to that, the fact that many businesses have discovered during the pandemic that many of their staff can work from home, and you can see a situation where the demand for fuel could continue to be lower than pre-pandemic levels and decline over the longer term.”