Why Are The Cheapest Oil Prices On The Stock Market Not Reflected By The Cheapest Oil Prices For Home Heating?
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Cheapest Oil Limited asked:
A question often asked is “why is home heating oil not the same price as it was when crude oil was this price?”.
Such a question made headlines in NI (Northern Ireland) in late 2008. A home heating oil website that monitors the cheapest oil in Northern Ireland looked into whether there is a case to answer.
There may be discrepancies but the biggest reason for the difference is in the exchange rates (as oil is priced in dollars).
In November 2007, $64 would have been just over £30. In November 2008, $64 would be around £40. This sort of difference alone would mean oil priced at £300 in Northern Ireland one year could cost £400 the following year in Northern Ireland.
If the price of crude oil remains steady and the pound gains strength against the dollar then there is no reason why we can’t see even cheaper home heating oil.
For the UK, including Northern Ireland, the big question should not be how many dollars a barrel of oil is but how many pounds a barrel of oil is. Although the crude oil price has dropped quite a bit, consumers haven’t got the full benefit of it because oil is priced in dollars and the pound has been weak recently against the dollar. For example, anything that cost US$45 would translate as £22 in the summer but cost £30 now so the exchange rates have been working against the price drops of oil.
However there is only so far it can go. Oil distributors, including those in Northern Ireland, would be quick to point out that they sell kerosene, not crude oil and that other cost factors need to be taken into consideration. If the price of a barrel of oil was free, that doesn’t mean someone is going to get it refined into kerosene and deliver it to your house for free. There are costs that are going to be more static than the stock market prices.
Paint Stick
A question often asked is “why is home heating oil not the same price as it was when crude oil was this price?”.
Such a question made headlines in NI (Northern Ireland) in late 2008. A home heating oil website that monitors the cheapest oil in Northern Ireland looked into whether there is a case to answer.
There may be discrepancies but the biggest reason for the difference is in the exchange rates (as oil is priced in dollars).
In November 2007, $64 would have been just over £30. In November 2008, $64 would be around £40. This sort of difference alone would mean oil priced at £300 in Northern Ireland one year could cost £400 the following year in Northern Ireland.
If the price of crude oil remains steady and the pound gains strength against the dollar then there is no reason why we can’t see even cheaper home heating oil.
For the UK, including Northern Ireland, the big question should not be how many dollars a barrel of oil is but how many pounds a barrel of oil is. Although the crude oil price has dropped quite a bit, consumers haven’t got the full benefit of it because oil is priced in dollars and the pound has been weak recently against the dollar. For example, anything that cost US$45 would translate as £22 in the summer but cost £30 now so the exchange rates have been working against the price drops of oil.
However there is only so far it can go. Oil distributors, including those in Northern Ireland, would be quick to point out that they sell kerosene, not crude oil and that other cost factors need to be taken into consideration. If the price of a barrel of oil was free, that doesn’t mean someone is going to get it refined into kerosene and deliver it to your house for free. There are costs that are going to be more static than the stock market prices.
Paint Stick
