March 04, 2019
With Britain forecast to leave the EU on 29th March, many of our customers have asked us how Brexit will affect the cost and availability of domestic heating oil.
The impact of Brexit on the UK fuel supply and distribution market will to some degree depend on the agreement made between the UK government and the EU, but as that is yet to be finalised, accurately predicting the outcome is difficult.
That said, it is possible there will be an impact on Britain’s 1.6m heating oil users so in this article, we explore what that might look like.
How will Brexit affect what I pay for fuel?
The biggest determinant of the price of heating oil is the global price of crude oil. Crude is an internationally-traded commodity and the price-per-barrel is set by global supply and demand. As a result, it is at the mercy of many factors – production levels in the OPEC countries; rising demand in China; disruption in the Middle East; fracking; even a Tweet from Donald Trump can send it soaring or crashing.
Brexit is unlikely to affect the price of crude oil because in global terms, it is a relatively localised event. But that doesn’t mean other things that do affect global oil prices won’t happen in the coming weeks. If they do, then the price of heating oil could fluctuate for reasons that are nothing to do with Brexit.
That said, just because Brexit won’t affect the price of crude doesn’t mean Britain leaving the EU will not affect heating oil prices.
There are several possible outcomes of the Brexit process and each one would manifest in a slightly different way. Whatever the final result turns out to be, however, the most significant factor will be currency fluctuation.
This is because wherever you are in the world, crude oil is traded in US Dollars. Therefore, the value of Sterling against the Dollar has a significant influence on how much we pay for fuel. If the pound weakens against the dollar, the price of fuel increases and vice versa.
So, if the outcome of Brexit causes the value of the pound to fall, then heating oil is likely to go up in price. This happened in the weeks immediately after the Brexit vote when the value of the pound dropped by 10%.
The good news, however, is that the value of the pound won’t necessarily drop. Some analysts believe that with the turmoil of the Brexit process behind us, it could actually rally against the dollar, leading to a fall in fuel prices.
Then, of course, there is always the prospect of a second referendum which could overturn the leave vote and actually see Britain remain in the EU. In that situation, there might also be a strengthening of the pound and a fall in heating oil prices.
Finally, there is another possible result of Brexit that could affect fuel prices. Europe might decide to impose tariffs on exports of fuel products once we leave the EU, which would lead to a small increase in the price of kerosene.
Of course, all this depends on what type of deal (or no deal) the Britain can broker with the EU and there are no guarantees. But it does mean leaving Europe won’t necessarily lead to an increase in fuel prices, and if it does, it is not likely to be by much.
Heating oil availability post-Brexit
Another concern expressed by our customers is about the availability of fuel after Brexit, driven in part by media speculation of shortages after March 29th.
We have spoken to a number of our suppliers about this – UK refineries and importers – and thankfully they have all said that they do not believe there will be any issues with availability of kerosene and other petroleum products as a result of Brexit.
Oil is a globally traded commodity and whilst some supplies to the UK come via the EU there is no reason to think that those supplies could not be replaced by other sources outside of the EU if required.
Therefore, we believe heating oil will remain as available after Brexit as it is now.
So, will Brexit affect the heating oil industry? The answer is probably yes, a bit. But only the price.
And as we’ve suggested, it is just as likely to reduce fuel prices as it is increase them. One thing is for sure though, we will find out for certain on 29th March. That is unless Theresa May asks for an extension, of course!
Fuel supply is unlikely to be affected by Britain leaving the EU, so despite all the hyperbole there really is no reason to panic.
Finally, we believe that any volatility that does result will be short-lived because once the dust settles, the markets will stabilise, and business can return to normal.
So, what should I do?
Despite the fact there is a chance the price of heating oil might drop after Brexit, on balance it is more likely to rise a bit. So, we are advising customers to hedge their bets. If you need to top up, our advice is to do it before we leave the EU, so you can be sure of a favourable price.
Doing this should also see you through the worst of any immediate post-Brexit turmoil, meaning by the time you need to top up again, you won’t be paying through the nose to heat and power your home.
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