Why do heating oil prices go up and down?

It starts with wholesale kerosene

Kerosene, also called burning oil, made up 88% of the oil products used by UK households in 2025, according to government energy statistics, and heating oil and jet fuel are both kerosene-based. UKIFDA, the fuel distributors' trade body, told the Competition and Markets Authority (CMA) in 2026 that contracts between fuel suppliers and distributors refer to the European wholesale price of jet fuel, and that over the last 15 years that wholesale price has made up on average 75% of the retail price.

Changes are passed on quickly. The CMA found that distributors have limited storage and generally do not hedge, so a rise in the wholesale price usually reaches retail prices within two days. Their own operating margins are thin, averaging 4% to 6% of the final price.

Crude oil, refineries and jet fuel

Kerosene is refined from crude oil, so crude prices matter. The government's Quarterly Energy Prices lists what moves crude: shortages, oversupply, recessions, natural disasters, pandemics and international conflict, from the Russia-Ukraine war to tensions in the Middle East.

Home heating uses only a small share of kerosene. UKIFDA estimates that about 79% of the UK's kerosene-type fuel goes on jet fuel and 12% on home heating, so the aviation market does much of the price setting. Government energy statistics show the UK relies on imports for jet fuel, diesel, gas oil and heating fuels. UKIFDA also told the CMA that once the 2026 conflict began, the jet fuel price moved apart from crude, and heating oil followed jet fuel.

The pound against the dollar

UKIFDA notes that jet fuel is traded in US dollars a tonne, so its cost to UK buyers depends on the exchange rate. If the pound weakens against the dollar, the same oil costs more in sterling even when the dollar price hasn't moved. A stronger pound works the other way.

Winter demand and delivery

The market is seasonal. The CMA found demand higher in winter and lower in summer, with distributors' margins tending to rise when seasonal demand is strong. UKIFDA adds that delivery capacity is typically under-used in summer and fully used in the colder months. At times of very high demand, such as shortages, price spikes or very bad weather, there may not be enough tankers to meet it, and that affects the price.

The government's energy statisticians also note that heating oil prices vary with location, demand, weather and delivery costs, and that these fuels are not regulated to the same level as gas and electricity.

Shocks, local costs and no price cap

The 2026 Middle East conflict showed how these forces add up. The CMA found that higher wholesale costs made up 83% of the average rise in retail prices in March 2026. Higher operating costs added 6%, as distributors fetched oil from more distant terminals and paid more for haulage, fuel and overtime. Wider margins made up the remaining 11%, for a period when demand outstripped supply.

Local costs matter all year round. The CMA found that homes further from wholesale supply points, and in areas with fewer oil-heated households, including parts of Scotland, tend to pay more. And unlike gas and electricity, heating oil is not covered by Ofgem's energy price cap, so these movements reach your quote directly.

To see how far these forces have moved prices over the years, look at the price history since 2011.