With news that London’s biggest oil refinery is in liquidation and predictions of significant price rises in the South East as a result, I started thinking about how fragile the heating oil supply chain really is.
We saw during the 2010/2011 winter how the snow affected the amount of oil leaving refineries and the huge spike in the oil price that resulted from this breakdown (80 pence per litre was not uncommon). The Coryton refinery has failed financially and its owner, Petroplus, cites decreased demand for oil as the primary reason.
As a write this:
- Wincanton drivers are striking which will disrupt supplies to 380 Jet forecourts
- Iran is poised to shut off the Strait of Hormuz.
- The average price for heating oil right now is 60p for 500 litres and this is not a spike because demand is low.
So what does the future hold for those of us reliant on oil ? It strikes me that it takes very little to disrupt the supply chain. The margins for most players in the heating oil industry are low. Therefore refineries, oil suppliers and hauliers are all operating very lean business models. A small change in demand, severe weather conditions or strikes can have a major impact on the capacity to deliver oil to consumers and therefore the price is highly volatile.
If we add to this the sensitivity of the underlying crude oil price to political changes in the Middle East then we have a potential crisis in the making.
At WhichOilSupplier we would urge consumers to plan to reduce their reliance on heating oil. We predict that the 60p mark will be the base line price for 2012 but expect this to rise as the Iranian situation escalates. Although not much oil in the UK hails from the Strait of Hormuz, its closure would cut off about 20% of oil shipped globally. Any disruption will cause a panic and global prices will soar.
If you have a wood burner, we recommend you stock up now with logs with a view to using them next winter. If you do not have a burner, we recommend you buy one with a back boiler and run your hot water and central heating from it. The days of 40p per litre have now gone so we either accept that our heating oil costs have risen by 50% in two years and pay the price, or we plan to heat our homes some other way.
All rather depressing…
Tags: coryton refinery, crude oil price, oil refinery, petroplus
