Free Market Effects on Oil Prices

By John Swindells 20 Dec 2010 | Comment
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In times of cold, icy weather conditions, demand for heating oil is high, and supply is restricted. In free market conditions there is only one thing that can happen: oil prices will rise. The rate at which they have risen during the last month or so of 2010, around 70%, is unprecedented however, so is it time for there to be protective Government action?

A consumer would be paying 43-47 p/L at the beginning of November, and at the beginning of December it had risen to 55-59 p/L. In mid-December the price was around 70-80p/L, on a lead time of two weeks or more.

Do we need regulation on the price of heating oil? Is it right that companies are at liberty to take advantage of customers?

On BBC Radio 4's You and Yours, Tim Yeo (MP, Cons.) put forward his views on the issue. He said that the current prices "don't look fair" and that there were probably a number of suppliers exploiting the situation. This was not acceptable and he was calling for suppliers to operate by a strict voluntary code. Suppliers should also publish wholesale prices.

In response, a spokesman from the Federation of Petroleum Suppliers (FPS) said that the price of kerosene had gone up about 20% to distributors. There were 'exceptional costs' getting fuel out. Drivers were being allowed to work longer hours than the statutory maximum just to get fuel out. In essense, all of this does justify the high price rises. Deliveries are being affected, and even terminals are having trouble getting supplies. Trucks are travelling further to get stocks. On the subject of profiteering, he said that the industry was "highly competitive", and that the majority of areas have half a dozen suppliers or more. He did concede that reported quotations of £2 per litre sounded extraordinary. There were however cases where people wanted to queue-barge, as they were willing to pay more.

Tim Yeo agreed that there were some exceptional delivery costs, for example a bit of overtime etc, but it doesn't add up. He also claimed that there were lots of people without real choice of suppliers.

The Department for Energy and Climate Change (DECC) stated that there is an "open market for heating oil" and that this system gives the best long-term guarantee of best prices. If there are signs of monopolisation or collusion then the competition authorities can take action. The industry as a whole is regulated by the Office of Fair Trading (OFT).

The FPS spokesman went on: "This is a market economy. High demand can cause higher prices." He also explained the flip-side for suppliers: "low demand periods can cause very low profits", for example during summer. "There are no companies making millions of pounds of profit."

Tim Yeo wants to get the OFT to look at this, to see if regulation is required. There are real problems for consumers at a particularly vulnerable time.

What is your opinion? Should the Government intervene across the board, or should profiteering be dealt with on a case by case basis? Are people expecting too much to get their usual tankful during these testing conditions? Add your comment below!

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by paula lockhart on 22 December 2010
roughly no more than 8 weeks ago I put in 500 litres of oil thinking this would last me until Jauary then when I got paid again I would put another 500 liters in due to the heating being on more due to the bad weather! however when my husband heard on the news the situation with the waiting list for oil plus the prices I thought I'd better look into this whilst I still had 200 litres of oil left in my tank. After spening 2 days ringing round all the oil companies I was disgusted to find out that I am now being charged double the price and I will have to wait 4 weeks for the oil to be delivered. We have gone out and purhased 3 heaters and turned off the oil because we dont know when we are going to get oil next because I REFUSE to pay double the price because all the oil companies are all jumping on the band wagon causing the public to panic buy - NOT ME!!!!!!!
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