Consumers are naturally interested in how the heating oil price is determined and keen to ensure that they are not being ripped off by their oil supplier. Listed below are the major factors that add to and determine the final price paid:
- Price paid by the refinery is determined by the prevailing Platts price (Platts is the world's foremost source of price assessments in the oil markets)
- Price paid by supplier to buy the oil from the refinery is about 2 pence higher than the Platts price
- Cost to run the back office eg salaries for customer service staff, office lease, rates, advertising and cost to invest in infrastructure ie land for depot, building of storage facilities – up to 3 pence per litre
- Cost to deliver the fuel, ie the diesel to run the tankers, the purchase of the tankers themselves, driver salaries, tanker repairs – up to 5 pence per litre
- VAT paid by the supplier
- VAT paid by customer
- Profit made by supplier
- During winter when it is difficult to physically get heating oil to the depots the price is sometimes increased dramatically purely to stop any further sales.
As you can see, the heating oil industry works on a small profit margin and therefore needs to operate at high volumes to generate a good profit for their business. A rule of thumb is that a 7 pence premium on the Platts price is a very good price to purchase at. However, you will pay more than this during busy periods or if you do not shop around.
It is difficult to quickly obtain a range of kerosene prices unless you are prepared to ring around lots of suppliers. During the winter it is often very difficult to get through to anyone because of the high call volumes. However, there is a useful price comparison site for heating oil called WhichOilSupplier which will ensure you minimise your home heating bills.
