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Households fuelled by heating oil may face biggest energy cost hikes this winter

Households that use heating oil to warm their homes or heat their ovens could be facing some of the highest energy bill increases this winter.

There are approximately 1.5million homes in the UK that use heating oil, including those with Aga cookers. 

All of these households are likely to see huge jumps in prices, thanks to the ongoing energy crisis.

Price hike: Homes that use heating oil could be facing some of the highest energy bills

Since the end of August, the cost of heating oil has increased 36 per cent, from around 44p per litre to more than 60p per litre, according to data from the Energy Helpline.

This could rise even higher, as demand increases with the weather getting colder and crude oil prices continue to creep up.

And unlike electricity and gas, there is no regulator to keep a lid on soaring prices.

This is Money, with help from Energy Helpline and Uswitch, takes a look at how heating oil is used, why prices have gone up by so much and if there is anything households can do to keep costs down.

What is heating oil?

Unlike homes that use mains gas from the grid and have their gas supply available at all times, heating oil must be purchased directly for delivery to the home in bulk and stored in a tank.

The primary heating oil for UK homes is kerosene. It comes in two grades, premium and standard, which are priced accordingly.

The premium heating oil has chemicals added to it which improve your boiler’s efficiency and cut down on sludge build up in the supply tank — similar to premium petrol for your car.

People may choose to use heating oil as it is considered an efficient fuel, with users normally getting a good return on every unit of energy.

It is normally used in a ‘wet’ heating system, where an oil-fired boiler heats water, then provides central heating through radiators and hot water to the taps in your home. 

The price of heating oil has increased to 60p since the end of August as wholesale costs rise

The price of heating oil has increased to 60p since the end of August as wholesale costs rise

How much prices have gone up by and why?

Just like mains gas prices, heating oil prices can — and will — fluctuate with the market.

However, unlike a mains gas user, a heating oil user will feel this impact more directly as they are purchasing the oil in real time, rather than buying it from a supplier who has purchased their energy well ahead of when the gas actually gets used.

There are several factors that impact heating oil prices and a household’s ability to get the cheapest heating oil. 

These include crude oil prices, refining costs, distribution and delivery costs, increases in demand, VAT rates, weather conditions and currency exchange rates.

At the start of the pandemic, prices fell from more than 40p per litre to around 20p per litre, as demand dropped away.

Over the course of this year, prices returned to around the 40p per litre mark – but with demand increasing as the weather gets colder, and crude oil prices on the rise, heating oil prices have increased dramatically over the last month or so.

Now prices have gone up by 36 per cent in the last month and a half, according to Energy Helpline, from around 44p per litre to more than 60p per litre.

However, prices typically hover around the 50p per litre mark in recent years, showing the dramatic rise in cost this year. 

This is because heating oil price is very seasonable with increases in cost regularly occurring whenever the weather turns and falling away again when it gets warmer.

Many have seen energy increases recently whether they use gas, electricity or heating oil

Many have seen energy increases recently whether they use gas, electricity or heating oil

Is there anything customers can do to lower bills?

One of the main things customers can do is to visit comparison sites such as BoilerJuice.

Once armed with quotes, households can pick up the phone and haggle with a provider to try and get a better deal.

Crucially, customers can also stock up on heating oil in the summer months when prices are lower.  

Timing is everything, as heating oil prices are linked to the weather and buying when it is warmer will often result in savings. 

Customers could also consider installing renewable heating systems as an alternative.

This could include water-heating solar thermal panels or heat pumps.  

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