With spring just around the corner, it’s an important time for those in agricultural sectors as it marks the beginning of the growing season. From preparing the soil, whether it’s ploughing, harrowing or tilling, to sowing seeds and fertilising, it’s a busy time for everyone. And for any business that relies on fuel whether in agriculture, construction and manufacturing, or any other sector, knowing when to buy can be tricky due to the volatility in oil markets.
In this blog, we’re going to take a look at what’s happening in the commercial oil market, how world events are impacting prices, and look at the various factors that affect the price you pay for your fuel to help you plan for the months ahead.
The Red Sea crisis and its impact on oil prices
Whether your business uses kerosene, red diesel, derv, or all three, oil prices are extremely volatile and subject to sudden changes based on unexpected events - and that’s especially true in current times due to what's happening in the world.
The Russian invasion of Ukraine in February 2022 resulted in a big spike in the price of oil, and whilst the good news is it’s not all gloom and doom and oil prices are now much lower, a relief for many, the recent unrest in the Red Sea has once again brought uncertainty to the market.
As a result of Houthis staging assaults against Israeli-owned and operated ships in the region, several big shipping firms halted all commercial shipments of oil and gas through the Red Sea in December last year. BP, one of the world’s leading international oil and gas companies, and Maersk, the 2nd biggest container shipping fleet in the world, were just two of these companies. Director of Policy at the UK Chamber of Shipping, Peter Aylott, said the scale and number of attacks was unprecedented.
Prime Minister, Rishi Sunak, has said that the attacks have caused major disruption to a vital trade route. Ships are now being re-routed around the Cape of Good Hope, which is at the tip of South Africa, and which adds thousands of miles and extra time to their journeys – all putting upward pressure on oil prices. And a missile attack on the oil tanker Marlin Luanda at the end of last week has caused further unrest in what was already an increasingly dangerous situation.
Whilst markets have settled back, the BBC reported earlier this month that the UK government has modelled outcomes including crude oil prices rising more than $10 a barrel and a 25% increase in natural gas due to its concern that ‘ongoing attacks on shipping in the Red Sea could weigh on the UK economy’.
OPEC cuts and the effect on oil prices
OPEC, the Organisation of the Petroleum Exporting Countries, is an intergovernmental organisation of 12 member countries. Members include Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The organisation has a significant influence on global oil prices due to its control over a substantial portion of the world’s oil production. OPEC countries produce around 40% of the world’s crude oil, according to the BBC news.
At the end of 2023, several OPEC+ countries agreed to cut oil production voluntarily in the first quarter of 2024. It was announced that 2.2 million barrels a day would be cut, with Saudi Arabia, the world’s biggest exporter of crude oil, leading with a voluntary cut of 1 million barrels a day.
Like other commodities, oil prices are influenced by the basic economic principle of supply and demand. As demand increases, prices tend to rise. Equally, when demand reduces, prices tend to fall, although the many other factors that affect the price of oil can counterbalance the effect of supply and demand.
Seasonal demand
Whilst global events, political unrest, and OPEC all impact world oil prices, so too does seasonal supply and demand. As we head into spring, with warmer weather and light nights, the demand for home heating oil in the UK reduces. However, as sectors such as agriculture, tourism and hospitality, and construction ramp up their activities, the demand for commercial fuels such as red diesel and derv increases.
So when to order?
We must still remember that there are other factors too that affect oil prices such as the exchange rate between the US dollar and the UK pound and industry-specific factors.
So whilst there is no foolproof way of knowing when is the best time to order your kerosene, red diesel, or derv, it’s good to plan ahead and not leave ordering until the last minute. And we’d also recommend avoiding peak periods when prices tend to rise. Remember, oil suppliers will often charge more for an emergency delivery.
If you’re worried about keeping your fuel at its best, our range of additives will do just that. Red diesel, for instance, usually has a life span of 6 months, but you can increase its lifespan by using an additive to keep your tank free from water, clean and bug-free, ensuring your fuel doesn’t just last longer but is also more efficient.
The decision as to whether to buy now or wait isn’t always just down to price. If your tank is already full, you’ll have to wait until you have sufficient room for a fill. And it's also worth remembering that fuel suppliers will often charge more for a smaller delivery so it can pay to wait a bit longer so you can order a larger quantity.
Two new fuels
Changes to red diesel taxation came into effect on 1st April 2022 whereby the government withdrew tax relief for a number of sectors and business groups. The good news for the farming industry is that these changes do not apply in the same way as they have impacted other industries.
However, if the changes have impacted your business, and you previously used red diesel in heating applications, rather than using more expensive derv, you can make big savings with our GO:35, a drop-in alternative and clean burning heating solution that attracts no excise duty.
In addition, we’re now able to offer HVO (Hydrotreated vegetable oil) which is a renewable fuel and can reduce your emissions by up to 90%. If you currently use derv to power your business, this is a far more environmentally friendly drop-in alternative and just as efficient as traditional diesel. And by using HVO, it will help you meet your environmental targets.
If you’d like to know more, or are looking to place your order, you can rely on us whatever sector you’re in. Just call our friendly and experienced customer service team on 01423 770 668, or email us at helpoil@northernenergy.co.uk.
Our highly trained team and long-standing delivery drivers will give you the very best service, all tailored to the individual needs of your business.