Skip links

What impact has the triggering of Article 50 had on Heating Oil prices?

 

….Well, from early indications very little!

 Indeed, whilst Brexit fills the UK news channels, the global oil market is far more focused on two competing factors – will OPEC extend the cut in oil production when they meet next in May, and if they do, will the US Shale Oil teams keep pumping more oil to compensate (which is largely what has happened over the last few months). The markets seem to be working on the basis that any cuts from one side, will just be matched by increased from the other, so we might expect a stable 6 months of dollar based oil prices, between $50 and $55 – Still a long way below July 2008 when the price arched $134, but well above the $31 in January 2016.

 Of course the other major factor on heating oil prices here in the UK is the Sterling : Dollar rate. Here, Brexit has clearly had an impact, as the generally weaker pound might have been helpful to exporters, but it has pushed up the relative price we pay for oil.

 To give you an idea, in the 12 months from February 16, the oil price in dollars rose 67%, but in the UK, with the impact of Sterling, the rise was 91% – so a significant factor. That said, the pound has strengthened in recent months, and the oil price has fallen in March, so the forces that have driven the price up over the past 12 months, have started to work more in our favour.

 

Pound sterling

The question is, for how long?

 My best guess, and I’m an oil distributor, not a trader….is that the underlying oil price will remain stable, the various forces at work look to be balancing themselves out, so my bet is small daily movements up and down, but generally flat. The impact of Sterling is much more tricky to call. Much depends on the early exchanges in the Brexit negotiations – Will the EU push politics over economics and drive a harder deal, which might lower Sterling, or will both parties come up with a deal that keeps much of the status quo, in which case the markets would feel more comfortable and Sterling would rise again.

 I’m no better informed than the next person in regards to this, my instincts are that both sides will find an accommodation for each other’s needs, but I am a businessman, not a politician and they may decide to play a different game.

 So, in summary, Article 50 / Brexit has almost no direct impact on the oil price, but due to the move in the Pound,  it already has impacted what we pay in the UK and will remain the most likely factor to change price moving forward.

 One last thing to consider is that the diesel and petrol you put into cars, busses and lorries carries both duty and VAT on Duty (70p per litre). This does mean that even a large move in the fuel element has a much smaller impact on the price we pay at the pumps – which I suppose is good news, of some sort….

 Chis Bingham

CEO Craggs Energy

March 2017