After Russia ban oil prices push up costs for already squeezed households

The price of oil spiked this week as reports emerged that the west was considering sanctions on Russian crude.

August Graham
Wednesday 09 March 2022 15:41 GMT
Oil prices have soared in recent months (Jane Barlow/PA)
Oil prices have soared in recent months (Jane Barlow/PA) (PA Wire)

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The ban on oil imports from Russia will push up prices on global markets and could add to the hit on already struggling households.

Energy prices around the world are soaring, and the rise in oil will continue to hurt households.

Abby Jitendra, principle policy manager at Citizens Advice, said that British households who use oil to heat their homes will feel a pinch from oil prices, which are near historic highs.

It comes alongside a squeeze on the majority of households that use gas for heat in winter.

A homeowner turns down the temperature of a central heating thermostat in Basingstoke, Hampshire as energy prices rise (Andrew Matthews/PA)
A homeowner turns down the temperature of a central heating thermostat in Basingstoke, Hampshire as energy prices rise (Andrew Matthews/PA) (PA Wire)

Monthly energy bills will go up by around £60 from the start of April, and could jump by another £150 over next winter.

“It’s hard having to find another £60 a month, I think it’s nigh on impossible for lots of people to find another £150,” she said.

She said that targeted support was needed. “For instance (some people) can’t turn off their fridge because there’s important medication in there, you have to keep your house at a certain temperature otherwise your health condition will deteriorate.”

The two million households that are paying for energy as they go through pre-payment meters are of particular concern, Ms Jitendra added.

In winter, when finances are already stretched, these people will have to find hundreds of pounds more to keep their heating on, more than households that pay by direct debit.

Bills could be stretched even further if the UK, and the EU in particular, go further with energy sanctions. But so far this does not appear likely.

The oil ban was in many ways low-hanging fruit for London, as the UK sources only a small amount of its oil from Russia.

But in Brussels and other European capitals things are different. The EU gets more than a quarter of its oil from the country.

Politicians in Westminster did not go as far as the US in also banning Russian gas. Even though Britain only receives a small fraction of its gas from Russia, this would likely be more complex.

Much of the oil that is imported to the UK comes via ships, so it does not really matter where the ship arrives from. But the infrastructure to receive shipped natural gas is much more limited.

Shipped gas – known as liquified natural gas (LNG) – is also more expensive than pipeline gas.

The more immediate impact of the US and UK import bans is on the oil price.

The price of a barrel of Brent crude oil has been steadily rising in recent months, and was hovering at around 130 dollars per barrel following the announcement.

For context this is 75% higher than just three months ago, and nearly three times above where it was two years ago.

The oil price naturally feeds through to the cost of petrol – the price of a litre of unleaded petrol was 158.20p on Tuesday, according to RAC. That is 23% higher than a year ago.

But there are also less obvious impacts. On Tuesday, Bloomberg reported that plastics factories in Asia are slowing production because oil prices are too high.

On Wednesday, Norwegian chemicals company Yara said it was cutting back production at plants in France and Italy because of high gas prices.

It is part of what analysts call demand destruction, and will become more obvious if prices push higher.

Ipek Ozkardeskaya, an analyst at Swissquote, said that if prices breach through 140 or 150 dollars per barrel for a longer period, it would hit demand further and prices would fall back down as a result.

People start conserving and changing their behaviour, which impacts demand,” ConocoPhillips chief executive Ryan Lance told Bloomberg TV on Tuesday.

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