Friday: the optimum day to buy OIL?

Friday 29th June 2012 – a day and a date to remember, because 500 litres of heating OIL cost less than £240+vat for the first time for twenty months.

Well it most certainly will be – a date to remember that is – if all the indicators are correct and it does turn out that this was the day to go to the market and buy your heating OIL for the next six months, the next year, maybe for…well maybe for a very long time, maybe we will never again see prices so far below 50ppl?

This potentially perfect storm of choosing the optimum moment to go to, and buy from, a volatile market began at the turn of the year. Speculation that Iran would disrupt the majority of the Middle East’s OIL supply route, the infamous Strait of Hormuz, sent Brent Crude OIL prices on a very steep upward curve hitting $128 in March. From that high a correspondingly steep downward spiral saw a low of just under $89 a barrel in the last ten days, but this came to a very abrupt end on Friday as the market rose by over 5% and prices currently stand at $97 per barrel. The dramatic fall was created because Saudi Arabia want lower prices, their Oil Minister Ali al-Naimi literally called for prices to stabilise around $100 per barrel and production out of the kingdom was increased to 30 year highs in an attempt to create the surplus that would reduce prices. It worked, clearly, and the main reason for overshooting and hitting below $90 was the Eurozone turmoil increasing concern, further decreasing demand and creating even more of a surplus. See below the IMF table of the breakeven point that some of the OPEC countries need on a barrel of OIL. Saudi’s is $71 and so whilst it is easy to believe that they would be happy if OIL were up at $200 a barrel because profits would be vast, it is clear this is not true as $100 already makes them (if not others) massive profit and lessens the potential for a global slowdown which would reduce demand. So why did the price bounce and begin to head back up? Saudi is still pumping away at record rates, the Eurozone may have had another summit with some easing of restrictions, yet it is hardly out of the woods, so I am afraid we are back to Iran! The rises earlier in the year were very much based on speculation of supply cuts, yet as of 1st July we can be sure there will be very real supply cuts, because the EU is imposing its ban on imports of Iranian OIL. The EU is second only to China in buying OIL from Iran and it is a considerable one million barrels that will come off the shelf, so to speak, every day from the world’s hypermarket for Crude OIL.

This is what is so fascinating about this moment in time – as Bloomberg reported: “The prospect of a rebound in prices driven by sanctions on Iran illustrates the readiness of the U.S., Europe and their allies to suffer higher fuel costs in order to curb the Islamic republic’s nuclear program”, we are self-imposing these increases! The sanctions are effectively giving us as close to a guarantee as you can get (it is OIL after all so there are no real guarantees) that prices are heading up and so these increased costs, as I said, are literally being self-inflicted. The analysts seem to agree because they think there will be “a rebound to an average $114.50 a barrel in the third quarter, according to the median estimate of 32 analysts tracked by Bloomberg”.  What does that mean for every product refined from Crude? It means they, heating OIL included, are very likely to hike up on the back of real supply issues not speculated supply issues.

Friday 29th June 2012 – a day and a date to remember!  When heating OIL begins to bubble away again and we lament once more that it is heading towards 60ppl, then those members that chose to buy with the group will be even more content that they did. I wouldn’t use the word happy – how could we ever be that when we are still using such a destructive product over which we have so little control. That is why we work to wrestle at least some of the control back for the consumer right at the point of when this vast industry meets its end user. The way we do that is to give them knowledge: we closely monitor the wholesale markets, trawl through reams of information written about OIL and world markets, interpret the market intelligence we receive and then inform our members.  As a result of this Community Buying unLimited placed the largest one-off order for community OIL, on behalf of its members, communities and Community Buying Groups, that the UK has ever seen, simply as a result of watching the market, informing the membership and giving them the choice to buy in at the time of market falls. This time an informed membership reacted with urgency and they have been rewarded by a household budget changing figure of less than £240 (+vat) for their 500 litres of OIL, when the cost has been in excess of £300 and pushing £350 for over a year.

So what would you do now if you had missed buying your OIL at what looks like it might have been the optimum moment? Well given that we know that the price we bought at was better than some suppliers could actually buy their product at before they then resold it, and given I know that the price at which we bought was beyond any price that any other group could have achieved because it was a record low against the wholesale Kerosene price and Kerosene then rose by nearly a penny at the close on Friday, my advice would be not to delay another moment, but to read the next entry about the OIL hotline or email us immediately:chris@community-buying.com

Following are some OPEC producers’ fiscal breakeven oil prices per barrel from the IMF: Algeria $105,  Iran $117,  Iraq $112,  Kuwait $44,  Libya $117,  Qatar $42,  Saudi Arabia $71,  UAE $84