Friday 23 February 2018

What is fuelling the non-stop price rises at petrol pumps?

Petrol prices are approaching record levels set in 2008 -- but oil prices have almost halved since then. Are we being ripped off, asks Roisin Burke

While still reeling from the heating bill for the winter's big freeze, many of us also have soaring motor fuel prices to cope with.

At least the cost of heating oil and other living expenses is coming down, but the cost of petrol and diesel isn't -- it's actually going up and up.

Filling up at the pumps costs an extra €30 or so a month now compared to a year ago, for a 1.6 litre engine car doing about 150 miles a month. Prices have been climbing for over a year.

Petrol costs €1.28 a litre on average, while for diesel it's €1.18, according to the AA's latest statistics. That could go higher, AA's Conor Faughnan warns. "There's no prospect of prices falling in the next month or so, they might even nudge upwards," he predicts.

So what's causing this upward price spiral?

Industry pundits often try to explain away motor fuel price hikes by pointing to rises in the price of crude oil, but that doesn't cut it this time, as it's at just $80 a barrel right now. That's down from a peak of $147 in July 2008, when pump prices hit a scary €1.33 for petrol and €1.44 for diesel.

So if the price of a barrel of oil has been slashed nearly in half, why doesn't that have a dramatic knock-on effect on the price of fuel on the forecourt? Are we being ripped off in a spectacular fashion?

Well, wouldn't you know -- it's not as simple as that. The National Consumer Association (NCA) did a study of forecourt fuel prices, which says that comparing the price of a barrel of oil and the price of petrol and diesel at the pump is "inappropriate and does not reflect the reality of the petrol and diesel supply chain".

Just because the price of crude oil falls by 50 per cent, it doesn't mean the price at the service station will halve, unfortunately. There are other factors.

Tax is the big one. A massive wedge -- more than 75¢ -- of the price of petrol is tax, and it's 65¢ of diesel's price. The carbon tax brought in in the last budget added around another 4¢ to the price. The basic cost of a litre of petrol before Vat and other tax is about 50¢, at current rates.

Then there's the role of currency fluctuation. Crude oil prices are based on the dollar, which is strengthening, so the rate of the euro against the dollar affects prices at the pumps, importers say.

Then petrol forecourt retailers say they're not making big profits on motor fuel; in fact, their margin is being squeezed, they claim. "The real money is made from selling things with better mark up, like Mars bars and milk, not on petrol," one retailer says.

Good thing cars don't run on Mars bars or milk, then.

"The retailer has no option but to pass on increases and decreases as dictated by wholesalers, as they have no control over the supply cost," says David Blevings of the Irish Petrol Retail Association.

"We understand the public frustration when faced with higher prices, but petrol retailers operate on extremely low margins and merely pass on any increases and decreases based on the wholesale prices that major oil companies charge them.

"Fuel retailers suffer from elevated fuel prices also," Blevings argues, "and with fuel demand down around 20 per cent, profitability is now a major issue at many stations and several owners are taking the decision to close."

The wholesale price to which Blevings refers is the price paid by importers to producers for refined oil products, which has risen by about 17 per cent this year already.

One way to work out if we're being shafted on the cost of motor fuel is to look at something called Platts Quote. This is the bible for the wholesale price of refined oil products, which oil companies importing fuel into Ireland factor into their pricing. Both the NCA study and the AA say that this wholesale price does actually stay in line with prices at the pumps, and that increases and decreases are passed on with about a three-week lag.

So it's not the price of a barrel of oil that's taking its toll on fuel prices and on our wallets, it's the rising price charged by wholesalers. Or currency fluctuation. Or less consumer spend, or punishing taxes.

It's hard not to view these as excuses that suit the industry, but the bottom line is that there probably isn't a smoking gun of oil profiteering.

We're not the worst off, many of our European neighbours shell out even more than we do. In Germany it's €1.42 for petrol and €1.20 for diesel with France, Belgium and the Netherlands having equally high prices. British consumers pay heftier tax and also pay more overall -- it's €1.30 a litre for petrol on the average British forecourt right now, and diesel is about the same.

In the oil-guzzling US however, you'll pay just 55¢ for petrol and 57¢ for diesel.

Conor Faughnan expects "huge volatility" on motor fuel price for the next year or two. We'll see.

Sunday Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business