The effect of currency exchange rates on heating oil

By John Swindells 18 Oct 2016 | Comment
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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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