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Impact of No Deal Brexit on UK Fuel Supplies

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With 3 months to go, and all political sides split over how to implement Brexit (or not), one question we are being asked by some of our customers is what impact a No Deal Brexit event would have on the supply of Diesel, Gas Oil and Kerosene.

Having read lots of industry insider briefings, Government updates and looked at our own supply chain, I think there are 3 potential risks that anyone using oil for heating, power generation, transport or another commercial use should consider as we approach the deadline for leaving the EU.

 

  1. The most obvious factor is the exchange rate between Sterling and the US Dollar, as all global fuel is dollar priced. If the pound weakens, the real price of fuel rises, and vice versa.

Over the past 6 months, the pound has been trading between $1.43 and $1.21, which is around 18% shift, that said at the same time, the underlying price of the fuel has also been moving due to global demand and OPEC’s attempt to manage the price (and Trump’s attempt to stop them). In the same time period, the oil price has also moved from $86 down to $58 which is a 45% swing – Often the two factors cancel each other out, although the overall trend has been down as the oil price falls have outweighed Sterling’s fall. This volatility would more than likely increase if the markets sense that we are heading for a No Deal event. I seems likely that Sterling will lose value in the short term, which pushes prices up. It is, of course, perfectly possible that global trends and a falling oil price would negate this impact, although it could amplify it.

 

  1. Import restrictions on Crude Oil and Refined Petroleum

Around 40% of the oil we use in the UK is imported, some of it in Crude Oil form, some in refined product such as Diesel. In a No Deal scenario, technically the various agreements that allow us to trade oil out of the main oil hub of Rotterdam would be invalid, and hence supplies could be impacted in the days after Brexit. In reality, there are many other routes for import, but in a worst case, this could become a factor and drive prices up. The actual impact, in my judgement, would be far less than the fear of the impact, as per the final item below.

 

  1. Fear of shortage, driving shortages….

As ever, we humans have a habit of reacting to the fear of an event, rather than the event itself. I think the most likely risk to supply and price increases would be the fear that supplies might be hit. Whilst I think this is an unlikely outcome, I think the media focus on what Brexit could mean in a worst case could have the effect of making people take reasonable precautions and filling fuel tanks in cars, lorries, homes and businesses – If this happens within a short time period, the stocks of fuels will quickly run low, and the fear of running our becomes self fulfilling. I think this is a real risk, and who could blame the public for wanting to make sure their cars are full of fuel, their businesses have plenty of stock and their homes heating tanks are full during a period when it can often be very cold in March.

 

I worry that due to the levels of disagreement within the political classes, we will see more and more scare stories within the main stream media, and this will cause the greatest problems (and not just for fuel..)

 

So what is my advice? – well it would seem prudent to make sure that domestic and business fuel tanks are kept topped up – I would certainly not be running dry and desperate for fuel in February or March, or you risk being part of the problem of a rush on supplies. My advice would be that with oil prices low, and Sterling still relatively stable, it might well be worth filling up any tanks you have over the next few weeks, there is no need to panic, just make sure that you use the time available to avoid any rush as the deadline approached – and then take some smaller deliveries in Feb and March to keep topped up. It might cost a bit more for a smaller delivery, but the risks of not getting fuel, or paying a huge premium would be mitigated.

 

I would also point to the Cold Weather Priority scheme (CWP) https://www.coldweatherpriority.co.uk which is promoted by the Federation of Petroleum Suppliers and operated by a number of its members, including us. The CWP allows vulnerable domestic customers to notify their supplier that they would be at risk if fuel supplies run low, and hence are given priority in such an event. In a worst case scenario, that would mean that if we do get problems with fuel supply, anyone on the scheme will be prioritised for deliveries. If you are not on the scheme, just call your FPS supplier and make sure you are registered, it is very simple and free to join!

Disclaimer – The views in the email are mine, based upon all the information available. I make no predictions as to the outcome of the Brexit process – I will leave that to our elected politicians to sort out…or not.

 

Happy Christmas,

Chris Bingham - CEO

18th December 2018

 

 

 

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2017 Show Dates!!

 

 

Halifax Agricultural Show – Saturday 12th August

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Make sure you call over to our stand where we will have complimentary drinks, competitions for all the family and a special show-only price! Alongside this, members of our team will be on hand to discuss your Heating Oil, Red Diesel or Lubricant requirements.