In March 2013, the Scottish Government announced that they would be holding a referendum to decide if Scotland should become an independent nation. The referendum is due to be held on 18th September 2014 and could have implications for the exchange rate, North Sea Oil and Gas reserves and the economy. As well as this, Scottish voters must also consider changes in taxes, pensions and savings.
Scottish users of heating oil will be keen to know if they will see an increase in heating oil prices, if they vote yes, while users of oil throughout the UK will also want to keep a close eye on events in the chance that prices could be affected. If you are based in Northern Ireland, did you know that the main supply of heating oil into Northern Ireland comes from Scotland – the Petroineos Plant at Grangemouth. Read on for the key factors which could affect the price you pay to heat your home.
Currency / Exchange Rate
Likelihood to effect UK Heating Oil Prices: 80%
As oil is traded in US Dollars ($), the exchange rate plays a big role in the price consumers pay for their heating oil. A bad day for GBP (£) can see the price of oil go up, while on a good day it can drive the price of oil down. Recently, the leading UK parties have ruled out a currency share, so if Scotland does vote ‘Yes’ for independence in the referendum, it is likely to have an impact on the GBP exchange rate vs. the Dollar and this in turn may affect the price that UK consumers pay for their heating oil. Whether or not it would have a long term impact remains to be seen – if Scotland does become independent, expect a reaction from the currency one way or the other.
North Sea Oil and Gas
Likelihood to effect UK Heating Oil Prices: 40%
Outside of London, Aberdeen has the highest number of millionaires per capita in the UK, while unemployment is almost non-existent in the area. The reason for this is simple – North Sea oil and gas reserves. According to the BBC, “for 40 years, the industry has brought huge wealth to the UK, both in profits for the private sector and in taxes for public services”. There are an estimated 24 billion barrels of oil remaining in the North Sea which the Scottish Government estimates would bring tax revenue of £57B by 2018. Both governments are keen to show that their plans for the North Sea Oil reserves will best serve the population.
However, generally, as oil is traded on the world market, and the UK being a Nett importer of crude oil, the likelihood of an independent Scotland having a major influence on UK heating oil prices remains fairly low. In March 2014, the crisis in the Ukraine / Crimea has not had a major influence on heating oil prices.
Likelihood to effect UK Heating Oil Prices: 30%
With oil being traded on the world market, the focus is generally on news in the 2 big economies – the USA and China. The UK is currently 14th on the worldwide oil consumption list and this would likely fall if Scotland became independent. The likelihood of this affecting heating oil prices would remain fairly low.
BP / Shell / Ineos Comments
Likelihood to effect UK Heating Oil Prices: 10%
While these companies will have relatively little impact on world oil prices, their comments are worth considering. Ineos, owner of the Grangemouth Refinery, who came into the news in autumn 2013 commented that “Grangemouth will survive” whatever way the vote goes. This is good news for the local economy, as up to 10,000 jobs rely on the plant and fuel users in general as Grangemouth supplies around 70% of fuel used at Scotland’s filling stations.
Both BP and Shell have a keen interest in Scotland and have invested heavily in the region. Both companies commented that they would prefer for Scotland to remain as part of the UK, as it reduces questions marks over their investments, currency and tax rates. However, both companies are used to dealing with volatile political environments and would be able to cope with a ‘Yes’ vote.
After considering the factors above, it is likely that whatever way the Scottish public vote in September, oil prices will be slightly affected. Whether or not there will be a lasting effect remains to be seen. The good news for heating oil users is that prices are currently down around 15% vs March 2013. It may be a good idea to fill up over the summer to avoid any volatility in prices after September – though a word of warning – prices were lower during winter 2013 than they were in the summer. We can’t be sure what will happen with prices, but one thing we can guarantee is that ValueOils.com will be priced at the sharp end of the market.
By Andrew Higgins