For anyone in business, oil prices can have a significant impact in many ways, whatever sector you’re in.
Whilst transport firms, which are heavily fuel dependent, are likely to be one of the worst hit sectors, in any business rising fuel prices can lead to rising production costs, and higher transportation and distribution costs due to increases in fuel expenses, and fluctuating oil prices will also affect a company’s supply chain leading to an increase in the cost of raw materials. In addition, higher oil prices can also directly impact consumer spending as people cut back on non-essential purchases and entertainment due to having less disposable income hence affecting sales. All this can lead to higher outgoings for any business and can squeeze profit margins
In this blog, we’re going to look at why fuel prices are so volatile, how world events are affecting prices, and what’s happening with prices at this present point in time.
Why is oil so volatile?
Oil is one of the world’s most widely traded and volatile commodities, and is subject to many different forces. Its price is highly sensitive to many factors which include geopolitical events that lead to market uncertainty, changes in regulatory policies and production quotas, natural disasters, speculation by traders, and supply and demand not just in the UK but throughout the world.
One example of the effect of world events on the price of oil is the Covid-19 pandemic which brought about a huge shift in demand. Before the pandemic, global oil demand was about 100 million barrels a day, but due to lockdowns, this fell to 75 million barrels a day, leading to prices plunging as storage facilities became overwhelmed. The BBC reported at the time that oil prices had fallen to their lowest level for 18 years as demand for oil collapsed amid the pandemic.
In sharp contrast to this, crude oil prices bounced back and hit a 7-year high in the early months of 2022 due to the Russian invasion of Ukraine and concern over global supply.
Of course, OPEC, the organisation of petroleum exporting countries, which is a cartel consisting of 13 of the world’s major oil-exporting nations, can significantly influence oil prices by setting production targets for its members. The organisation’s mission is to ‘coordinate and unify the petroleum policies of its member countries and ensure the stabilisation of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry’. It actively increases production to decrease prices when members believe they’re too high, and coordinates supply cuts to drive prices up when they’re deemed too low.
So what’s happening to prices now?
Currently, with continuing uncertainty surrounding the situation in the Red Sea shipping channel, there is rising concern within oil markets. However, whilst cargo tankers are now having to reroute around the Cape of Good Hope in South Africa due to the increased risk of attacks targeting commercial ships, this is not affecting supply volumes but rather is adding to costs due to longer shipping routes and the delay in the supply chain. However, the good news is that we have not seen the skyrocketing oil prices experienced back in early 2022 when Russia invaded Ukraine and countries sought alternative fuel sources due to the sanctions that were put in place on Russian imports.
When to top-up
Higher oil prices have an impact on all oil users and knowing when to buy your commercial or agricultural oil, whether you use kerosene, red diesel, derv or all three, can be difficult. The jury’s out as to what will happen to prices in the future, although the impact on prices has been minimal so far – but so much depends on the unknown, and choosing when to buy can be a difficult decision.
Whilst, as we head further into spring, the warmer weather can often bring lower oil prices, this is not always the case and cannot be taken for granted. At the beginning of this month, OPEC+ members, led by Saudi Arabia and Russia, agreed to extend voluntary oil output cuts of 2.2 million barrels per day into the second quarter of 2024, which could potentially bolster prices.
There are, of course, other factors that play a part - factors such as changes in exchange rates (oil is traded in U.S. dollars so the value of the pound against the dollar can have a bearing), and even local competition plays a part as well. So our advice is to plan ahead, whilst keeping an eye on prices of kerosene, red diesel or derv, and buy in bulk if you can rather than in small quantities to avoid the higher unit prices some suppliers will often charge for smaller deliveries. Also, it's worth remembering to order within good time – fuel suppliers often charge more for emergency deliveries too!
You may want to consider additives to keep your fuel fresh if you’re buying larger quantities to get the best unit price. If there are times your fuel is left standing, we would recommend the use of additives to increase its lifespan, and we're happy to advise on what's best for you and your fuel.
An added benefit of having a full oil tank in the summer is it can help prevent the build-up of condensation. When tank levels are low, there’s more area for condensation to build up. Condensation is more common in spring and summer time. When the weather starts to warm up, the internal temperature of your tank will be cooler than the outside temperature, and as the moist air cools, it can cause water droplets to form and settle at the bottom of your tank which in time can build up and cause tank corrosion and damage to your boiler.
Save with GO:35
Considerable savings can be made with GO:35, an environmentally friendly cost-effective alternative to Gas Oil for commercial heating and drying. It’s considerably cheaper than traditional gas oil as there’s no excise duty on it. And the great news is, it’s completely compatible with existing boilers. So switching to GO:35 has many benefits.
It’s suitable for commercial and industrial heating, processing, manufacturing, and incinerators and can be bought in bulk and stored without risk of spoilage for long periods of time as it has long-term stability as well as zero bio content.
It’s perfect for industrial heating in any business!
So in these unsettled times, you can be assured that at Northern Energy we remain committed to providing our off-grid business customers with great value, and first-class customer service.
Contact us today for a quote on 01423 770 668 and our customer service team will be happy to help and advise. Alternatively, you can email us at helpoil@northernenergy.co.uk