Between June 2014 and January 2015, the price of oil dropped by more than 50%. “Brent crude oil has now dipped below $50 a barrel for the first time since May 2009 and US crude is down to below $48 a barrel.” –bbc.co.uk 19th January 2015
So what is causing the decrease? Simply put the recently decreasing price of oil is due to an excess of supply and a decline in demand. As always, oil prices are subject to the current political climate. The current economic situation, combined with a surge in output and a growing move towards alternative fuels, are all contributing to the decline in demand. Also, despite unrest in Iraq and Libya, productivity in those countries has not been affected. These days global unrest, particularly in the Middle East, is so common that the market is wholly unaffected by it. Another factor leading to an increase in supply is that the US now largely produces its own oil and so imports have decreased. Major players in the Middle Eastern oil industry, such as Saudi, have their own agenda and are allowing the price to go down in an attempt to force competitors out of the market. Such players are biding their time, so that they can increase oil prices in the long term.
On the forecourt petrol prices have increased a little but the oil price remains volatile and is difficult to predict. The US has an excessive supply of shale oil and is rapidly running out of storage space. ‘Ed Morse, the global head of commodities research at Citigroup, raised that concern on Feb. 23 at an oil symposium hosted by the Council on Foreign Relations in New York. “The fact of the matter is, we’re running out of storage capacity in the U.S.,” he said.’ – Bloomberg, March 12 2015. This could lead to a further drop in oil prices.
On the other hand OPEC members such as Nigeria, Venezuela and Iran, who are experiencing substantial deficits as a result of the drop in oil price, are increasing the pressure to increase the price, while Saudi Arabia has no intention of doing that, and with approximately $900bn in reserves, they can afford to trade short-term pain for long-term gain.
So how does all this affect the biomass boiler market? While consumers may be tempted to choose fossil fuels over renewable energy in an attempt to save money, in the long term renewable energy alternatives, such as biomass boilers are the wise choice. While oil prices fluctuate dramatically, the cost of running a biomass boiler is fairly consistent, as indicated in the graph below.
The current drop in oil prices is expected to be short-lived and prices are expected to increase in the medium-term, whereas the Renewable Heat Incentive (RHI) price tariff is fixed for 20 years and index linked for commercial users and seven years for domestic users. Also, those considering a switch to biomass boilers should take into account that the heat incentive has a shelf life and as more people join, the price tariff savings will decrease.
Director of biomass company, Energy Innovations, Nat Bacon says, “In no way should people be making long term energy decisions on the basis of current energy prices – probably the reverse! When oil is £1.20 per litre customers will be jolly glad they installed a biomass system and are benefiting from RHI income as well.”