Rising cost of oil looks to lift loo seats
Sky-high oil prices will see the cost of breakfast cereals, nappies and golf balls all soar, writes Louise McBride
IT'S about two weeks since oil prices hit a two-year record of $100 a barrel. With oil prices expected to hover around the $100 mark for the rest of the year, it looks like oil will be the next big thing to eat into your pockets.
YOUR SUPERMARKET TROLLEY
Many of the items you put in your supermarket trolley each week are either made of oil, or were transported there using it.
"Oil affects the price of everything," says Michael Kelleher, energy trading analyst with Bord Gais. "You can't produce anything without energy and oil is often the energy -- or within whatever is producing that energy.
"An awful lot of the goods exported around the world use bunker fuel (a type of oil used on ships). Gas (which is made from oil) is a huge cost in the production of fertiliser. So high oil prices will feed through to the cost of grain, which in turn will push up the price of bread."
Alan McQuaid, chief economist with Bloxham Stockbrokers, says the higher cost of oil "will undoubtedly lead to higher transport costs" so it will be more expensive to get goods to the retailers.
"This may well then be reflected in the selling price of supermarket goods to the consumer," adds McQuaid. "Apart from the obvious hit to household disposable income, higher electricity and gas prices will push up the cost of lighting and heating for retailers which again may be passed on to the consumer."
Fertiliser prices have already shot up over the last few months. No surprise then that the price of flour, which is made from wheat, jumped by 13.3 per cent last year while the price of breakfast cereals (often made of wheat and barley) was up 6.3 per cent.
And next time you complain about the price of dishwasher tablets or toothpaste, it might be worth having a word with OPEC. Many dishwasher tablets, washing powders, shaving creams and ice cube trays contain oil. Oil may even have been used in the artificial colouring in your toothpaste.
YOUR VISIT TO THE DIY STORE
You might think you're being thrifty by doing your own DIY work -- but if oil prices remain high, that visit to the DIY store could burn a hole in your pocket.
Oil is often used to make house paint, toilet seats, roofing, water pipes -- even your battered old tool box. And if you plan to follow up your trip to the DIY store with a game of golf, be warned -- chances are oil was used to make any golf balls or golf bags you're planning to buy.
YOUR ENERGY BILLS
If history is anything to go by, we could see the price of electricity and gas jump by as much as a fifth this year.
Oil is the main raw material used for the production of gas and it is often used to produce electricity. So higher oil prices will inevitably push up the cost of gas and electricity production -- and that cost eventually trickles down to consumers.
"If an oil price spike is over in a week, it won't have much of an impact on energy prices," says Paul Harris, head of natural resources risk management with Bank of Ireland. "But if you have a sustained increase in oil prices and prices remain high, that will filter through. The key issue is for how long oil prices continue to rise."
Harris believes that oil prices will remain high in 2011 and could hit as much as $120 a barrel by the end of the year. It usually takes between four and six months of high oil prices for that cost to feed into official consumer prices, according to Harris. If Harris is right, we could feel the pain of higher gas and electricity prices by May -- even earlier if history repeats itself.
In July 2008, oil prices hit record highs of almost $150 a barrel. A month later, ESB increased its prices by 17.5 per cent. In September 2008, Bord Gais hiked its prices 20 per cent.
The September 2008 hike was the last time Bord Gais increased its prices and oil prices have largely been falling since -- until last month. The last Bord Gais price increase before September 2008 was the whopping 33.8 per cent hike in October 2006. In late 2006, the ESB announced that a price rise of 12.6 per cent would kick in from January 2007. And guess what? 2006 was another year dominated by high oil prices.
Of course oil is not the only thing that influences the price of electricity and gas -- if demand for either grows or there is a disruption in supply, prices will usually be driven up. Similarly, if demand for electricity or gas falls -- or there is an oversupply on the market, prices will usually be driven down.
However, if sky-high oil prices are here to stay, the sight of Bord Gais, Airtricity and Flogas beating a path to your door to offer you cheaper energy could soon be a thing of the past.
It's almost two years since Bord Gais started to offer discounts of between 10 and 14 per cent on ESB's electricity charges. Airtricity joined the race in September 2010 by offering gas discounts of up to 20 per cent (on Bord Gais rates), as long as you get your electricity from it as well. Under this Airtricity bundled offer, you get a six per cent discount on ESB rates.
Last October, Flogas started to offer gas discounts of between 15 and 20 per cent. By the time these offers were launched, oil prices had fallen well below the record highs of July 2008. If prices continue around the $100 mark for most of 2011, offers like this are unlikely to be sustainable.
"Where the base cost of underlying fuel (such as oil) rises, it certainly puts pressure on energy discounts," says Harris.
Of course, the goal posts in the domestic electricity market are likely to change this April when the ESB is expected to be given the power to set its own prices and compete against its rivals. The energy regulator (officially titled the Commission for Energy Regulation) has not yet given approval to the ESB to set its own prices but is due to review the matter next month. What this means for our electricity bills remains to be seen.
YOUR FOUR WHEELS
We're paying more for our petrol today than we did when oil prices rocketed to almost $150 a barrel in July 2008.
Back then, we paid €1.33 on average for a litre of petrol. Today, with oil prices at about $100 a barrel, we're paying €1.43 on average for a litre of petrol. "Drivers are being hit with the double whammy of higher fuel taxes on top of high oil prices," says Conor Faughnan, director of policy with the Automobile Association. "If oil prices were to hit $150 a barrel, drivers could easily be paying €1.60 on average for a litre of petrol."
If, as Harris predicts, oil prices hit $120 a barrel by the end of the year, drivers will be paying at least €1.50 on average for a litre of petrol, according to Faughnan. That will push up your petrol bill by hundreds of euro a year.
If you drive a Nissan Qashqai 1.6SE for example, you're already paying a whopping €1,533 to fill up your petrol tank each year (based on an annual average mileage of 16,000km and your car burning 6.7 litres of fuel for each 100km driven). If petrol prices reach €1.50 a litre, your petrol bill for the year will soar to €1,608; if prices climb to €1.60 a litre, your bill will be a whopping €1,715.
If you're planning to splash out on a new car, it might be best to do so before high oil prices start to trickle down to your local car dealer. As well as being used to transport cars, oil is used to produce the steel and plastic used to build them.
YOUR BUNDLE OF JOY
You're already spending almost €400 a year on nappies for your flatulent baby -- but that bill could get even worse if oil prices stay sky-high.
Unless you've got eco-friendly nappies, chances are that oil was used to make the nappy around your little bundle of joy's butt. Check the ingredients on your nappy pack and you'll probably see petrolatum -- another word for petroleum jelly -- listed.
Petrolatum comes from petroleum, which is essentially oil. So high oil prices could eventually push up the cost of your baby's nappies, their Vaseline and even the crayons they use to scribble on the walls.