1.7m UK homes facing soaring bills as heating oil costs doubled in a week amid Iran conflict
Sir Keir Starmer will pledge a £50m support package to help households cope with rising energy costs in the wake of the Iran war.
Chancellor Rachel Reeves said Treasury officials had “found money” to help the nearly 2 million homes and businesses across the UK that still use heating oil and are not protected by energy price caps.
Ministers agreed the money would be set aside to support the poorest households, while the prime minister promised to support working people “whatever challenges they face”, he will announce on Monday.
It comes after energy secretary Ed Miliband hinted the government was open to halting plans to raise fuel duty for the first time in more than a decade.
Britain is also considering sending mine-hunting drones to help reopen the Strait of Hormuz. Mr Miliband said there were “a range of things” Britain and its allies could do to secure the route, which has been blocked by Iran, leading to a rise in energy prices.
What is heating oil and who uses it?
Homes and businesses in remote areas or built decades ago often have a tank that pumps oil directly to the property as needed. The type of oil used in this installation is usually kerosene-28 and is often ordered by phone or online from a local supplier when reserves are low.
As with any commodity, prices rise when demand exceeds supply and global oil supplies are under severe pressure; The cost of heating oil rises from around 66p per liter on 2 March to 128p per liter on 16 March.
However, there are large differences in pricing due to the way consumers order heating oil.
While other energy sources such as gas or electricity are usually contracted through large providers such as Octopus or British Gas, heating oil is usually purchased directly as it is needed. This applies not only to consumers, but also to the distributors themselves. Because homes and businesses often have 12-month contracts with their suppliers, large companies usually know how much usage they will have in the coming months and what bills will be if a price cap is imposed.
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The situation is different with heating oil. Consumers don’t need to always use the same suppliers unless they want to, and the suppliers themselves tend to be much smaller, often family businesses or regional firms. There are around 120 heating oil providers across Britain, compared to around two dozen major energy firms that supply electricity and gas.
Therefore, heating oil distributors themselves often purchase the product every day or several times a week, paying the current market rate in the process. This means that when the price of Brent crude oil rises, Brits won’t see it on their bills immediately, but those buying heating oil will.
Independent He is aware that some providers have told customers they cannot give an accurate price for deliveries a day in advance because prices have risen in the past week.
‘There is no delay in the market’
Ken Cronin, chief executive of UKIFDA, the trade association representing heating oil distributors, said: Independent He said another complication contributing to the rising cost of heating oil compared to oil generally used for energy in the UK was the amount supplied from the Middle East.
Only 10 to 15 percent of crude oil comes from this region into the British blend, but that’s a 40 percent dependence on heating oil, which as a kerosene product is closer to jet fuel than the fuel used to power cars and heat homes.
The ultimate flip side of such rapid price increases is that it will be the exact same process as the markets crashing.
“Although there has been a rapid increase, there could also be a rapid decline if the situation in Iran improves or supply decreases,” Mr. Cronin said. “There are no lags in this market and this is reflected in consumer prices. For example, post-Ukraine prices normalized very quickly – although this is still reflected in gas and electricity.”
“During Covid all planes were grounded so there were large stocks of kerosene fuel so it dropped to 25p per litre. Regional distributors are fighting for business so pricing is competitive and responsive to markets.”
As a result, UKIFDA advises customers who do not need an urgent delivery of heating oil to talk to local distributors and consider waiting to see where the markets go, rather than panic buying at high prices.
There were headlines last week that prices were particularly high in Northern Ireland. While distance was a factor in cost, this was also partly a result of a large portion of the population using distance as their primary source of home energy.
Costs are felt more quickly
Only 5 per cent of homes in England use heating oil, but in Northern Ireland the figure is between 50 and 60 per cent. Thus, cost increases are felt more strongly and immediately.
In total, around 1.7 million homes across the UK are dependent on heating oil, with around 520,000 of these in Northern Ireland. Additionally, between 100,000 and 150,000 businesses rely on it.
“Our customer base is where there is no gas grid,” Mr. Cronin added. “So rural Wales and the highlands of England, Scotland and Northern Ireland.”
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He added that UKIFDA data showed the average price band for heating oil since July 2011 was 50-60 pence per litre, adding that “there have been notable changes during Covid (down), Ukraine (up) and now (up)”.
Certas Energy, one of the UK’s biggest fuel distributors, said it was balancing a surge in demand last week and urged people not to order more than they normally need.
“Recent developments have created significant volatility in the oil market, with wholesale prices fluctuating on a daily basis,” the statement said. “We are currently experiencing a significant increase in heating oil orders, including larger than normal volumes. While we understand the desire for reassurance during uncertainty, this increase puts additional pressure on supply.”
Boilerjuice, a platform that purchases heating oil through different distributors, did not respond to a request for comment on the price increases.
