Good news for heating oil users has continued throughout November 2014 as heating oil prices declined by almost 10% from the beginning of the month. In some areas of the UK 900 litres is now below £400 – a significant decrease, especially when the price has fallen from over £500 at the same time last year. There are a number of factors which have resulted in falling prices and we examine the key ones below.
There has been a global oversupply of oil for many months. On the 27/11/2014, The Organization of Petroleum Exporting Countries (OPEC) decided not to cut oil production, which would have helped to support oil prices. Due to this oversupply at global level, oil prices have been driven down. Although, OPEC members have the lowest average production costs which, in some cases are as low as £1.30 per barrel – they have increasingly lost ground in the USA, which is the world’s largest consumer of oil.
Production of oil via fracking in the US has resulted in the US becoming a net exporter of oil rather than a net importer. With over a million Fracking oil wells in the country, this has led to part of the over supply problem. Simple economic principles state that when there is over supply, prices fall. As the US now have reduced demand to import oil this has also stabilised prices as ongoing conflicts in the Middle East now have less relevance to heating oil prices.
Heating Oil Prices 2015?
As always, there is no guarantee that oil prices will continue to fall. In the short to medium term, they may well do, but longer term, we would anticipate oil prices rising again. The good news for now is, though, if you are looking for a fill of heating oil before Christmas, you will have a lot more change left in your pocket than this time last year.