The price of heating oil has doubled in the past twelve months, and the EU wants to skim off excess profits. But who gets the profits anyway? The petroleum companies are reluctant, but the numbers are clear.
Although the mineral oil companies have repeatedly emphasized since the Russian invasion of Ukraine that they are hardly benefiting from the sharp rise in heating oil prices, Shell boss Ben van Beurden believes that the EU will also collect profits from his company with its planned excess profit tax. So did Shell and Co. make good money from the fact that many Germans are preparing for a winter in a cold apartment? The numbers suggest so.
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According to data from the mineral oil company Total, the national average price of heating oil has doubled in the past twelve months: from around 80 euros for 100 liters to over 160 euros (as of Wednesday). Compared to 2020, when prices fell below 40 euros at times, the price even quadrupled.
However, the average value distorts the picture, because heating oil prices differ significantly in the federal states: Households in Baden-Württemberg (180 euros) pay almost a quarter more than customers in North Rhine-Westphalia (140 euros). The other federal states lie between these extremes.
The reason for the currently extraordinarily large differences are the low water levels in the Rhine and Danube, which slow down ships that otherwise deliver oil to Baden-Württemberg and other current high-price regions. Adequate rain should mitigate these differences.
Also distorting: Viewed over a longer period of time, heating oil prices have risen significantly less: In 2011, 100 liters of heating oil cost around 90 euros, similar to the beginning of 2022. If you compare the current national average price of 160 euros with 2011, heating oil is only six on average percent more expensive each year.
Since prices have not risen steadily in the past few months, but have risen at lightning speed, some companies are suddenly making significantly more profits. The EU wants to skim off these profits.
According to Rainer Diederichs, spokesman for the German association of the mineral oil industry En2x, the fact that heating oil remains expensive despite falling crude oil prices is due to a lack of refinery capacities: “Crude oil is not scarce on the world market – but petrol, diesel and heating oil are,” says Diederichs. “In the past, sufficient refinery capacity was always available – this is not the case at the moment for various reasons.”
One main reason for the low capacities is the low water in the Rhine and Danube, which makes refining by ship unattainable. In addition, the Ukraine war destroyed some refineries or forced production. After all, the mineral oil companies have mined capacities piece by piece due to the heating oil demand that has been significantly back since the 1970s.
In its balance sheet, Shell speaks of a drop in production of around twelve percent for all oil products in the first half of 2022 compared to the previous year. However, competitor Total Energies sold almost as much in the same period as in 2021.
Shell spokeswoman Katrin Satizabal says that the reduced supply is being offset by growing demand: “The demand drivers include and include the global economy recovering after the pandemic” and that industrial companies “are converting plants and power plants from gas to oil firing in view of the impending gas shortage”. Even end dealers no longer speak of a demand such as “for at least ten years or more”.
Nobody wants to earn as much money as people are currently paying for heating oil. The mineral oil companies Shell and Total agree that they will transfer around two thirds of their heating oil revenues to the manufacturers. Less energy and value-added tax, only around 11 percent of the selling price was paid by Shell, says a spokeswoman. The company has to pay for transport, storage and the mixing of additives, among other things. That doesn’t leave much profit.
En2x spokesman Diederichs also says that higher prices do not necessarily mean higher profits. He also points to increased costs in production, including for the electricity and natural gas that power refineries.
A look at the balance sheets of Shell and Total reveals a different reading: Both companies earned more in the past twelve months than in the four years from 2014 to 2017 and significantly more than in any single year since 2012. Profits from crude oil and natural gas rose at Total in the first half of 2022 twice as much as in the previous year, at Shell at least one and a half times as much – “mainly thanks to increased prices,” says Shell.
Even if both companies do not show the exact share of heating oil price increases in these profits, customers can assume that a good part of their additional costs flow into the pockets of large energy companies. So there are definitely gains for the EU that it can siphon off.
The remainder mostly ends up with corporations from which Shell, Total and Co. buy the oil that they do not produce themselves. These include state oil companies, private international energy companies, intermediaries and straight brokers.
Since European companies will continue to obtain part of their oil from Russia until the end of the year, Russian state-owned companies will also benefit from the German heating oil price increase. Part of the sales go to Putin’s war chest.
Small and medium-sized companies that fill the fuel oil into the tanks of the end customers earn the least from the price increase: they bill their services mostly according to time and effort. They only resell the heating oil itself. They don’t care how much the liter costs.
For households, the question remains whether, given the high heating oil prices, they should fill up the tanks only slightly and hope that prices will fall in the coming year. Market observers are expecting crude oil prices to fall in the coming year, but it seems uncertain whether this will also make heating oil cheaper: if demand remains high and supply low, the prices for heating oil are unlikely to fall to the levels of 2021.
Crude oil prices do not necessarily have to fall either. Corporations and the federal government are trying to find suppliers who will replace the Russian oil that is no longer available. At the end of the year, however, the supply is likely to be dampened again: oil companies are not currently extending purchase contracts with Russia. As a result, the share of Russian oil in total German consumption fell from around 35 to around twelve percent just a few months after Putin’s attack on Ukraine. According to Diederichs, because the contracts that are still in place often run until the end of the year, many remaining imports are then suddenly eliminated. This reduces the supply, which supports the price.
The fact that the Organization of the Petroleum Exporting Countries announced on Wednesday that it would reduce its production by two million barrels a day and thus support the price of oil shows how quickly unexpected events thwart long-term forecasts. Whether German households will buy heating oil more cheaply in 2023 than is currently the case, nobody can say for sure at the moment.
