Look at this remarkable fall in average UK Heating OIL prices to near four year lows. Great news for OIL buyers right? Actually, possibly not.
If I told you that wholesale prices to the supplier had followed a similar pattern (I covered how transparent Heating OIL prices are in my blog a couple of days ago) and you were a supplier would you be holding a lot of stock right now? Surely with prices this low you would be filling up your storage tanks, right? Well no, because if your mindset was like that you probably would have looked at this graph last month and thought I must fill my storage now, because how far can prices keep falling? Well they kept on falling, so had you done so you would be sat there with full storage tanks bought at a price way above market average now and you would be having sleepless nights. The simple fact is that there is not a single supplier in the UK with anything other than a very limited amount of storage right now, because there is no demand. Their winter hasn’t arrived, yet.
Where do OIL suppliers buy their stock? Wholesalers see exactly the same information. Do you think they’ve watched those prices and thought “the market is falling rapidly let’s store more?” The answer is obvious. There is Kerosene on this island, but the industry has run to a “just in time” model for a long time, and it is a simple fact that there is rarely much surplus.
So think about this equation: last winter never happened for the Heating OIL industry; this winter has not arrived yet; as a result there are fewer suppliers; other suppliers have reduced their delivery fleet; OIL delivery is a finite business which is a calculation of number of driver hours, number of trucks, number of delivery days – effected only in a negative way when the weather that creates huge demand actually kicks in; what that all means is this finite total has therefore reduced; temperatures continue to be unseasonably high; household incomes continue to be depressed; both of which mean users have delayed buying their OIL; hence, heating OIL orders are at record lows; meaning the majority of users have not got very much OIL in their own tanks; no demand means heating OIL suppliers also have very little storage; as ever, there is very little surplus on the island of Great Britain…in other words…IF lots of orders come to the market at the same time too many factors point to one big supply challenge.
There really is only one major factor missing in all that…what happens when winter arrives? Three scenarios:
- If it just gets a bit cold then the market will cope
- If it freezes properly then it will become a tad chaotic for the length of that cold snap and maybe a little longer
- If it snows and stays for three or more weeks then we will have an energy meltdown the like of which this country has not seen for a very long time
There will be plenty of people reading this scoffing thinking “who does he think he is?” I very much hope we don’t find out, I really do. But get this, if those three scenarios wait until we are anywhere near December then multiply everything I have just said by any number you choose. The extraordinary thing is this is almost completely invisible to the majority and the complacency with which most OIL buyers are treating ordering their OIL, because of that graph above, is going to create a trap door which thousands of people will fall through and the landing won’t be soft.
What do I know? That many have short memories. I don’t! Easter last year we had a mini preview to this (you can see the YouTube evidence here): http://www.youtube.com/watch?v=ASJ7ebvYOjA, supply, prices, panic and, for some, ethics all went in the wrong direction and to the extreme. That was a very short lived imperfect storm when many of those factors above came together and many areas of the UK actually ran out of Kerosene. I mean ran out at the source for suppliers. Depending on when and how deep, when this winter arrives it could make Easter 2013 look like a very minor blip.
This is my message to Heating OIL users: secure your supply NOW and give yourself something that money cannot buy, PEACE OF MIND. Even more importantly do the entire Heating OIL industry a favour and take your orders out of the equation above. This is all invisible right now, but when it becomes visible many will wish they had asked CBL “how do I do that…?”