Sir Keir Starmer is set to pledge a £50 million support package to help households cope with spiralling energy costs in the wake of the Iran war.
Chancellor Rachel Reeves said Treasury officials have “found the money” to help the almost 2 million homes and businesses across the UK that still use heating oil, which is not protected by the energy price cap.
Ministers have agreed money will be set aside to support the poorest households, the prime minister will announce on Monday as he vows to support working people with “whatever challenges lie ahead”.
It comes after energy secretary Ed Miliband hinted the government is open to halting its plans to raise fuel duty for the first time in more than a decade.
Britain is also weighing up sending minehunting drones to help reopen the Strait of Hormuz. Mr Miliband said there was “a range of things” the UK and its allies could do to secure the route, which has been blocked by Iran and has led to a surge in energy prices.
What is heating oil and who uses it?
Homes and businesses in remote areas or those built decades ago often have a tank that pumps oil directly into the property when required. The oil type used in this setup is typically kerosene-28 and it is usually ordered by phone or online from a local supplier when reserves run low.
As with any commodity, prices go higher when demand outstrips supply and the global oil supply is under severe pressure, with the cost of heating oil rising from around 66p per litre on 2 March to up to 128 pence per litre on 16 March.
There is, however, a wide discrepancy in pricing due to the nature of how consumers order heating oil.
Whereas other energy sources such as gas or electricity are typically contracted through large providers, like Octopus or British Gas, heating oil is usually bought directly on an as-and-when-needed basis. That isn’t just the case for consumers, but for distributors themselves. Due to homes and businesses usually having, for example, 12-month contracts with their supplier, the big companies typically know how much usage they will have over the coming months and, with the price cap in place, how much the bills will be.
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With heating oil, it’s different. There’s no need for consumers to use the same suppliers every time if they don’t want to, and the suppliers themselves tend to be far smaller, often either family-run businesses or regional firms. There are around 120 such heating oil providers across Britain, compared to around two dozen of the larger energy firms supplying electricity and gas.
Therefore, the heating oil distributors themselves are typically buying in the product every day or several times a week, paying the current market rate in the process. It means that, while the price of Brent crude has risen, Brits won’t immediately see it on their bills – but those buying in heating oil will do.
The Independent understands that some providers are telling customers they cannot give an accurate price for deliveries until the day beforehand, as the price has been increasing this past week.
‘No lag in the market’
Ken Cronin, chief executive of UKIFDA, the trade association representing heating oil distributors, told The Independent that another complication adding to the rising cost of heating oil, versus oil typically used for energy across the UK, was the amount sourced from the Middle East.
Only around 10 to 15 per cent of crude oil comes from that region into the British mix, but for heating oil – which, as a kerosene product, is closer to jet fuel than that which ends up powering cars and heating homes – it’s a 40 per cent dependency.
The eventual flip side of such rapid price climbs is that it will be the exact same process as the markets come down.
“Although there has been a rapid increase, there would be a rapid decline as well if the situation around Iran improves or supply eases,” said Mr Cronin. “There’s no lag whatsoever in this market and that’s reflected in consumer prices. As an example, post-Ukraine there was normalised pricing very quickly – whereas it’s still reflected in gas and electricity.
“During Covid, all the planes were grounded so there was a huge amount of kerosene fuel stock, so it was down to 25p per litre. Regional distributors are fighting for business so pricing is competitive and reacts fast to markets.”
As a result, UKIFDA advises customers who do not immediately need a heating oil delivery to speak to local distributors and consider waiting to see where markets go, rather than panic-buying now at elevated prices.
Last week, there were headlines about prices in Northern Ireland being particularly high. While distance is a factor in cost, that was partly also a result of such a large portion of the population having that as their main source of home energy.
Costs being felt more immediately
Just 5 per cent of homes in England use heating oil, but between 50 and 60 per cent do so in Northern Ireland. As such, cost rises are felt more keenly and immediately.
All told, around 1.7 million homes across the UK rely on heating oil, with around 520,000 of them in Northern Ireland. In addition, between 100,000 and 150,000 businesses rely on it.
“Our customer base is where the gas grid isn’t,” added Mr Cronin. “So rural Wales and England, the highlands of Scotland and Northern Ireland.”
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He added that UKIFDA data shows since July 2011, the average price band for heating oil has been 50-60p per litre, with “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 over the past week and urged people not to order more than they typically needed.
“Recent developments have created significant volatility in the oil market, with wholesale prices fluctuating daily,” said a statement. “We are currently experiencing a marked increase in heating oil orders, including larger-than-usual volumes. While we understand the desire for reassurance during uncertainty, this surge is placing additional pressure on supply.”
Boilerjuice, a platform for buying heating oil through different distributors, did not reply to a request for comment on pricing increases.
