Oil Prices: In Parliament

The extreme price of heating oil is back in Westminster again, after Tom Watson described the situation as a 'crisis'. The UK's average temperature for December is 4-5 degrees below normal, and there is expected to be continuing cold through Christmas and into the New Year.

The Official Response

On Monday 20 December, Lord Marland (Parliamentary Under-Secretary of State, Department of Energy and Climate Change) read a statement from Charles Hendry (Minister of State for Energy):
Many households across the UK without access to the natural gas grid rely on deliveries of heating oil to heat their homes. Heating oil is also used by smaller commercial customers, notably with demand focused in the agricultural sector.

Overall, UK heating oil demand is around 3.7 million tonnes per year with domestic demand accounting for some 60 per cent. Demand is seasonal, with around two-thirds of heating oil consumed between October and March.

The recent severe weather has significantly disrupted the distribution of heating oil to customers across the UK, particularly, but not only, in Scotland. The severe weather, notably low temperatures and heavy snow, has caused considerable disruption to road networks, which has affected suppliers' ability to make deliveries particularly to more remote areas away from the strategic road network. This has resulted in delivery backlogs, which suppliers have been working hard, in difficult circumstances, to reduce.

There are around 200 fuel distributors in the UK, which work hard throughout the year to supply their customers. Many of these companies are small businesses, some with perhaps only two or three delivery vehicles. A tanker will make an average of 16 domestic deliveries per day covering some 180 miles to make these deliveries. The bulk of the time in making a delivery is taken up by the travel between the vehicle's base and the customer and between customers. Some larger suppliers hold their own stocks at smaller depots but others pick up from fuel terminals "off rack", purchasing product on the spot market. Modern road tankers deliver fuel to the customer's storage tank via a dedicated fuel delivery system.

Tackling this backlog is challenging for the industry at a time when, due to the cold weather, it has been facing significantly higher demand than is usual at this time of year. This challenge has been exacerbated by delays to deliveries due to the state of the road network in parts of the UK and customers bringing forward deliveries that would usually have been made in the new year. However, prompt action to relax regulations on drivers' hours has enabled drivers to work for longer each day making more deliveries and helping to manage the backlog.

Distributors are doing all that they can to prioritise deliveries to vulnerable customers and those running short on fuel. Working with DECC, the Federation of Petroleum Suppliers has issued a voluntary code of practice to its members to help them to prioritise orders to those most in need. We are also putting in place arrangements with distributors, through the relevant trade associations, the Federation of Petroleum Suppliers and UK Liquid Petroleum Gas, for distributors to alert local authorities when they are aware of a risk that potentially vulnerable households will run short of heating oil. Similarly, we have asked local authorities and other local responders to be aware of these risks and, taking account of local circumstances, to consider what assistance they can provide to potentially vulnerable households who may need support over the Christmas and new year period.

[I've bolded the juicy parts. Text extracted from Lords Hansard text for 20 Dec 2010]

It sounds like the minister has been told what to say by the Federation of Petroleum Suppliers, in an effort to allay people's suspicions of exploitation by the oil supply industry. Conditions are difficult, but surely not enough to justify the crazy sorts of prices doing the rounds in the run-up to Christmas.

What Constituents Think

Other parliamentarians are not so diplomatic. On Tuesday 21 December, Neil Parish and Craig Whittaker were allowed a minute or two to vent their anger at some 'unscrupulous' oil companies. Craig Whittaker mentioned that he has constituents "who have contacted me in the past couple of days to express the real suspicion that the supply of oil is being held back to inflate prices artificially, with the companies knowing full well that the average UK home that uses oil can store only up to 60 days' worth" He concludes that in effect, those homes have to buy oil when winter is at its worst.

I rise to speak about heating oil, another matter very important to rural constituencies. My constituency is 40 miles long; it starts on Exmoor and ends up in the sea at Seaton. There is a huge rural area within those boundaries, and many of the villages and hamlets there have no mains gas supply. Their only alternative to electricity for heating is oil. That is why the postcode lottery on what people pay for heating oil must stop.

During business questions last week, I made the point that during November and early December, crude oil prices went up by 17% and that the price of heating oil went up by 70%. There is no justification for that. Within rural areas, there are many old properties - some are farm houses, some are small cottages - and they are difficult to insulate with modern insulation and expensive to heat. People need more fuel to heat them, and if we lump on to that the huge increase in price, a lot of the heating allowances for poorer people just do not go very far at all.

About 2 million properties rely on heating oil; they are mostly in rural areas - 828,000 of them are in England. Recently, as I said, there has been a spike in oil prices that could add as much as £540 a year to the average family's heating bill. The price of heating oil tends to rise gradually in the winter months, when demand is at its highest. A home owner might use anything between 2,500 to 4,000 litres of oil. Price rises during winter are unavoidable, but the price rises that we have seen cannot be justified simply by supply and demand.

Furthermore, some oil companies unscrupulously deliver oil at a very high price and hold back on deliveries under contracts that are sold at a lower price. The issue really needs to be sorted out.

That brings me neatly to my next point. Crude oil accounts for 48% of the cost of heating oil. The largest next component, accounting for 45%, includes the cost of distribution and marketing. The refining process accounts for only 7%. The average price of a litre of heating oil in Northern Ireland, which has had some of the worst of the recent weather, is 48p per litre, or 52p in Belfast - and given that weather, the cost of delivery and getting the tankers to the houses would be among the greatest. The average price in the south of England at the moment is 80p per litre, while in the middle of England it is 68p, in Wales it is 67p and in Scotland it is 64p per litre. What justification is there for someone in the south of England having to pay nearly twice as much as people in Northern Ireland? During the same period, the price of petrol at the pumps has gone up by only 10p per litre.

I say clearly to the Business Secretary that it is time that we did something about the situation. At the moment, he is considering establishing the position of an ombudsman to consider food prices and whether supermarkets' buying power is too great. I urge him to get on with that as quickly as he can. I do not know whether he wants to go down this route, but I suggest that having an adjudicator or ombudsman for heating oil might provide some sort of solution to the problem that I have outlined. I am not thinking of a huge bureaucracy but of somebody people could contact to ask why their heating oil is so expensive in their parts of the country. Those companies would have to justify what they are actually charging. At the moment, there is misery being made out of cold weather and some people have no source of heating other than oil fires, Agas and boilers.

As I said, many houses are difficult to heat and insulate, and people are having to pay an extra price before Christmas. The Government cannot just stand by on this matter. All hon. Members probably believe in some form of market forces, but in this case those forces are being used to drive up the cost of fuel unjustifiably. As I have said, weather conditions alone cannot justify what is happening because Northern Ireland has had some of the worst weather in this period, yet it has some of the cheapest fuel. We must ensure that constituents who use oil to heat their houses, wherever they live, pay a fair price for that fuel and are not held to ransom by either the oil companies or those who deliver the oil to houses.

[I've bolded the juicy parts. Text extracted from House of Commons Hansard Debates for 21 Dec 2010]

The Irish comparison is an interesting one. Why has Ireland, with its terrible recent weather, had only small price increases compared with England and Scotland? He is right to call for some sort of adjudication where consumers think that they're being exploited, but maybe the current situation is too widespread for individual case studies.

The official response from the Federation of Petroleum Suppliers is available as a PDF: Supply and Pricing of Heating Oil - December 2010.


10 Comments

by Paul Howell on 25 September 2011 Reply
Its September 2011, still business as usual for the oil suppliers. Nothing will change as heating oil consumers are a very small section of the voting public; look at how the whole country bows to the whim of transport fuel pricing . No offence to anyone involved in so doing, but writing newspaper articles and 'intervention' by vote - trawling rural MP's will do nothing. DEMAND is the only effective negotiator. It's over ?600 / 1000 litres for 3 months max frugal winter use. Last year, I spent ?1400 on installing a multi-fuel fire with fan - assisted air ducting. Cheap fuel (in my case mostly free) means the oil boys get less than half my former business, and it will go down as they charge more. Do something like that and they might look at their pricing.
by Don on 24 January 2011 Reply
What is now needed is an investigation to determine the amount of overcharging and a

system established to refund those people who have been ripped off.To be paid for by oil company

profits. Can anyone tell me if the situation with Calor Gas is any better. This was even worse with

a complete unregulated monopoly. Someone told me there is an energy regulator set up by government

but I can't honestly believe that is true.

by kim cross on 23 January 2011 Reply
I managed to buy 1000 litres on 2.12.10 at 59.9p/lt with Fuelcare Fernhurst. I subsequently checked the price with Southern Counties two days later as I thought the price was steep and the quote was 79.9p/lt. I paid 45p a litre at the end of October.

These are just facts that maybe useful to the OFT in curbing malpractices by the oil companies. I check the Brent Crude price everyday and the increases do not concur with the prices charged by the heating oil companies.

At 79.9p a litre, it would cost us ?200 a week to heat just parts of the house to 20 degrees Celcius.

by Michelle Wild on 20 January 2011 Reply
Why doesn't the Government ensure that all of the villages get piped up for gas then we will not be held to ransom. Why should where you live determine what services you receive? If computers are considered a priority for rural areas surely gas is a more basic commodity..come on cameron do something useful for a change!. It is long overdue and by the way mobiles are poorly servrd too .
by John Swindells on 23 January 2011 Reply
The provision of gas would ensure a more equitable supply stream, but with all fossil fuel sources you won't escape a long-term upward price trend.

Best thing is to do everything possible to use less!

by Lisa Roberts on 12 January 2011 Reply
we have run low on heating oil and refuse to buy any until prices are more affordable. We popped to our nearest Comet store and have bought three small oil filled radiators to plug in in our three mainly used rooms in our home - we refuse to pay for these rich shareholders to get richer at our expense. Don't mind paying a fair price. There is clearly a monopoly going on now and it is terribly unfair to the consumer. Government most definatly need to step in and regulate!
by Jason on 16 February 2011 Reply
Even at 79p / litre the energy in the oil is 11kwh, making each kWh 7.2p, electricity is 14-15p/kwh, nearly twice the cost, even Economy 7 electric isn't any cheaper at >7p/kWh. Overall, it will be dependant on the efficiency of your oil boiler, but lastest oil boilers are 93-94% efficient. LPG is 7kwH/litre, so at 60p /litre it is 8.5p/kwH, more than oil. Town Gas is now around 4.5p/kWh, nothing much competes with this for running cost except for an Air or Ground Source Heat Pump, which should be around 5p/kWh.
by John Swindells on 16 February 2011 Reply
This very informative Jason, thanks!
by John Swindells on 23 January 2011 Reply
You've raised an intereting question - how much heat can you get out of a £ of heating oil compared to a £ of electricity? Oil-filled radiators have a bad reputation for being expensive, but maybe they're cheaper than buying oil at today's prices!
by Peter Bailey on 09 January 2011 Reply
The domestic heating oil pricing situation is now CONFIRMED as a RIP OFF.

We have been with a local supplier for 16 years and until 2010 were completely happy with the personal contact, delivery reliability and PRICE.

This company was taken over by an Irish Group in 2009 and now both delivery reliability, customer friendliness ( except for the excellent dirvers) and PRICING has been out of control!

Feb 10 @ 47p per litre, Aug 10 @ 41p per litre and NOW Dec 10 82p per litre. When we ordered in early December to ensure an end of Dec delivery NO PRICE could be given. The delivery note which normally includes the price, did not.

This increase over 4 months of 100% bears no reflection on oil price increases and can only reflect on the greed, market exploitation and lack of consideration of some heating oil suppliers. It reflects on the Irish owners as attempting to gain market share monopolise supply.

We are rural pensioners and have faced a THREE fold increase in heating costs in 3 years!!!!!

by A Nelson on 09 January 2011 Reply
I think it is disgusting,about the current prices and no one in authority is doing anything about it. I have spoken to my supplier and they cannot believe the prices
by John Swindells on 10 January 2011 Reply
Does your supplier think that there is monopolisation in the wholesale market? That would be very bad indeed.
by A. Cope on 04 January 2011 Reply
I also have looked for a refill over the last few days and I agree someone is really taking the rise, literally.Over the weekend it was 75p vat a litre give or take, today, its dropped slightly to 65p the vat. I like ben z had some oil in september and paid ?313 which would now cost the best part of ?500......SWEET!
by John Swindells on 10 January 2011 Reply
I also ordered, in October I think, at just under 40p/L. Prices are still holding high right now, despite all the supposed 'supply problems' having gone away. All very suspicious.
by John Knight on 04 January 2011 Reply
I have read the article below and totally agree with the comments about fuel racketeering.

The quote from the Parliamentary reply is obviously onesided and somebody in Government should LISTEN to the Consumers point of view and QUICKLY>

I run a consortium for our local villagers in the Lincolnshire Wolds and we ordered oil on December 6th for 60p/litre vat. (We usually order about 25,000 litres at a time). This is compared to a price of 34p/litre last Christams when the weather was equally as bad.

In January and February of 2010 we paid no more than 42p/lire and the weather was bad.

For 2010 as a whole the average price was 40.4p/liter vat so how come this sudden rise in oil prices. Boiler Juice does what we do on a national scale and they managed to get to over 90p/litre just before Christmas.

I hope this comment helps move something on

John

by John Swindells on 04 January 2011 Reply
The bad weather early last year certainly didn't have the same price effect as in December. Prices are still well above normal; this can't just be explained by high demand and supply problems can it?
by bob parker on 28 December 2010 Reply
lots has been said but as usual nothing positove has resulted from it and for the Heating Oil Industry it is business as usual.

Perhaps the industry should be compelled to do a return to the Gov detatailing, cost of raw material,on costs to market etc and that woould show that they are making exorbitant profits or are just totally innefcient in running a business.The main problem with the oil supply is that the customer base is made up of small users, perhaps we could ask Tesco to come to our aid as I am sure that they would drive down price !

by John Swindells on 05 January 2011 Reply
I agree, cost data should be always available - at least to a regulatory body. They do claim to barely cover costs during the quiet summer months, but I find that hard to believe. Can't see Tesco's getting involved any time soon, though!
by ben z on 23 December 2010 Reply
i have just got a quote for a refill of my tank and it is literaly double what it was at the beginning of september im sure that racketering is illegal isnt it ? im thinking of spending the money on electric heating to be honest i think now it will be cheaper in the long run ;-)
by Jamie McGinnes on 04 January 2011 Reply
Hi Ben Z. I wrote a piece about heating oil prices for The Sunday Times before Christmas and would be interested in hearing your story. Please could you get in touch at jamie.mcginnes@sunday-times.co.uk or 020 7782 5682?

The same goes for anyone else who feels they have been the victim of profiteering; please get in touch!

All the best,

Jamie

by leslie priest on 23 January 2011 Reply
Until 3 deliveries ago we had always had a bill with oil deliveries from G Force Fuels of Haslington.With new ownership this has stopped and,our price have been 47p,63p to 72.5p per litre.On 29/12/10 they indicated it could hit 85p and,I agreed 72.5p.I'd had no prices for the previous two deliveries.Have I any redress?
by alan on 07 January 2011 Reply
NB I believe that Boilerjuice has been taken over by a company that has a fuel supply operation
by John Swindells on 04 January 2011 Reply
Good work, Jamie. The more investigation there is into this, the better - especially in areas of monopolisation, and ultimate ownership of supposedly independent suppliers.

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