The effect of currency exchange rates on heating oil

Exchange rates amongst developed nations are usually quite stable, and their fluctuations are typically only of interest to financial traders. Recently, however, the UK pound has been taking a bit of a battering as the ramifications of a "hard BREXIT" begin to unfold. Oil is traded in US dollars, so when we buy our heating oil in £ we are automatically affected by the exchange rate between these two heavyweight currencies.

Over the last decade or so, the £ - $ exchange rate has been bobbling around $1.50 or $1.60 to the pound, but it has now fallen to below $1.30. This is unprecedented in modern times, and doesn't really look like improving any time soon. Note that this is around a 20% weakening in sterling, and the price of heating oil has shot up from around 32ppL pre-BREXIT to around 40ppL now - so the oil importers are factoring in all of the exchange rate swing, and they presumably aren't expecting things to improve any time soon.

I wouldn't expect heating oil to get any cheaper before the end of the year, as the importers will be betting on a weak pound. Demand is set to increase as winter approaches and central heating comes on, so it may be worth getting a top-up or a half-fill now - just in case prices go even higher before spring-time.


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