Tuesday 22 May 2012

Why do some homes need heating oil?

The Office of Fair Trading has launched an inquiry into the heating oil market over high prices. The steep increases this winter have hit rural areas hard.

Why do some homes need heating oil?
Heating oil customers saw supply problems during the last heavy snowfalls Photo: PA

Why do some homes need to use heating oil and liquefied petroleum gas?

There are around 2.5m people living in the UK who are "off-grid". This means that they cannot get gas from the country's existing pipeline infrastructure. These houses tend to be in more remote rural areas, where it would be expensive to extend the current grid.

Why are people complaining about the price?

It appears that some prices quoted to customers this winter have risen more quickly than prices for heating oil on the wholesale market. For example, prices quoted by, owned by the biggest supplier DCC, rose from 45p in mid November to almost 75p per litre by Christmas. This jump is far bigger than the rise in the wholesale market which only went up 10pc during this period.

How do the suppliers explain the price jump?

They claim kerosene, the key ingredient of heating oil, has risen because of the weak dollar to sterling exchange rate. They also point out that the UK does not produce enough of its own kerosene in refineries so it has to be bought on the international markets. An even bigger problem was the weather, causing twice the usual number of orders. The Federation of Petroleum Suppliers said there had been queues of tankers at terminals and problems getting the heating oil to where it was most needed because of the snow.

What does the Office of Fair Trading intend to do about it?

The watchdog has launched an inquiry looking at "consumer and competition" issues. It will start in March and end in the autumn - proposing a solution, if any is needed, before next winter.

Who are the main players in the heating oil market?

The biggest supplier of heating oil is DCC Energy, the Irish company that also owns price comparison sites, including BoilerJuice. It has a quarter of the national market for domestic heating oil after buying up a series of regional companies, and it now operates under more than 10 brands. An official company presentation for its GB Oils subsidiary shows that 16pc of the company's business comes from the domestic – rather than commercial – market, but it makes 34pc of its margin in this area. Other major players in the heating oil market are NWF Fuels, marketed under 14 brands, Pace Fuelcare and WCF Fuels.

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