Rapidly changing oil market creates pricing and supply issues

With the price of heating oil more than tripling over the past 6 months and continuing to fluctuate unpredictably, distributors have reported issues with product availability and cost and voiced concerns over their ability to service their customers who rely on supplies for heating and cooking.

Several distributors have confirmed the suspension of their own normal pricing practices due to the spiralling and unpredictable cost. Last September, the cost of a 500-litre delivery of heating oil was in the region of £250 but late March this had increased dramatically – in some cases even to as much as £875 for those requiring an urgent delivery.

Extreme price fluctuations have left many distributors no choice but to take orders without pricing and then contacting their customers on the day with the price to see if they still want to go ahead with the delivery.

Working hard to deliver

Ken Cronin, CEO UKIFDA, confirmed that distributors have been doing their best in very difficult circumstances: “UKIFDA members collect from refineries almost daily and, in the first 10 days, prices were increasing on average by 5p per litre per day. As an industry, we recognise the significant impact this has on customers, and our members are working hard to provide the best service and price under the circumstances.”

The perfect storm

Even before Russia’s invasion of Ukraine, prices had increased at an alarming rate influenced by a range of factors including storms preventing offloading of product, European cyberattacks, geopolitical tensions and a mismatch between the amount of oil being produced and the amount being used as the world began to emerge from the impact of the pandemic. We reported on this in our March issue as it became clear that stocks were lower than understood and that the oil market had ‘few, if any, shock absorbers left.’

With the available supply in storage still recovering, the unfolding war in Ukraine created the ‘perfect storm’ sending prices that were already at a 7-year high into a further steep and rapid upwards trajectory. Against this rocketing price, distributors have reported issues with both product availability and the alarmingly high prices for available product as wholesalers are only able to speculate on the likely cost of their own next supply.

There will be no shortfall

At the time of the invasion a UKPIA spokesperson confirmed that UK fuel suppliers were working hard to ensure continued availability: “UKPIA and its members are working to respond to a rapidly changing environment and our thoughts are with those in Ukraine. Companies are in regular dialogue with government to ensure that fuels continue to be available following the events in Ukraine and resulting sanctions on Russian vessels. Production, fuel imports, and inland deliveries continue to supply the fuels the country needs.

“The UK’s oil products are sourced from a diverse range of suppliers including the UK’s own refineries and imports from across the globe. The restrictions on Russian owned, controlled, chartered and operated vessels are understood by fuel importers, and companies that have previously used such vessels are implementing contingency plans such as using alternatives to ensure products continue to be available.

“UKPIA also welcomes the planned release of compulsory oil stocks as a means to, as the International Energy Agency has stated, “send a unified and strong message to global oil markets that there will be no shortfall in supplies.”

On 18 March, oil prices hit almost $130 (£99) a barrel then dropped to about $100 before climbing steeply again. Back at the latter part of 2021 a barrel of crude was selling for $69.

With prices increasing at a rate never previously experienced distributors are reporting that their customers have divided into those ‘panic buying’ – wishing to fill their tank now as an insurance against further increases – and those ordering only when they have run out – or are about to – in the hope that the market stabilises.

Prices and supply in Ireland

A North Cork distributor has reported that the supply situation is ‘settling down’ after a few crazy weeks when panic buying led to long delays before deliveries.

Another Irish distributor commented that people ordering oil at present can expect delivery within the usual one or two days but confirmed that this had come down from much longer delays in previous weeks.

“People were panic buying,” he said. “The deliveries could take anything from 7-10 days.”

He also expressed relief that this hadn’t occurred in peak buying season: “If this had happened in November, December or January, the situation might have been a great deal more serious – as it is, if you get a fill of oil now it will do you until the end of summer.”

Across the UK and Ireland many distributors are having to restrict customers to a top up of just 500 litres, priced on the day of delivery and, in some cases, only able to supply those who have literally ‘run dry’. For those with non-contracted supply, every day begins with a ring around suppliers to see what product they may be able to pick up, from where and at what price.

In a supply update a UKPIA spokesperson commented: “Fuel suppliers are working with the government to deliver the fuels the UK needs, while rearranging supply away from Russian crude oil and oil products to alternative sources in compliance with UK sanctions legislation.

“Global markets have historically been able to adjust to ensure secure supplies and we expect this to be the case again this year.”

No end in sight

At time of writing, the price of oil remains at unprecedented levels with the likelihood that it will for the foreseeable future, as long as the Russian invasion of Ukraine continues, and its repercussions persist.

Even with a record fuel duty reduction announced in the Spring Statement, both motorists and those using oil for domestic heating will, as a result, continue to pay what were previously unimagined prices for fuel as well as face the prospect that this could last for some time yet.