PETROL PRICES:Unrest in the Middle East has caused fluctuations in oil prices, but part of the the blame for pricey petrol is much closer to home – for every €20 that a motorist puts in their tank, the Government takes €14
ONLY A FOOL or a mystic with uncanny powers would bet on oil prices right now. Just two weeks ago, with the Libyan crisis topping the global news agenda and unrest spreading towards the Middle East’s massive oil fields, all the talk on international markets focused on climbing prices.
Then overnight they started to tumble. The earthquake, tsunami and nuclear alert which left Japan reeling saw the price of oil fall significantly as speculators bet on a fall in demand from one of the world’s most powerful economies.
It is hardly news that the oil markets are on something of a rollercoaster and predicting where they will go next has made fools of the most clued-in of experts. At the beginning of 2008, a barrel of crude broke through the psychologically important $100 (€74) barrier on international markets for the first time and analysts predicted an era of high oil prices.
For months they were right on the money and prices climbed before reaching a high of $147 (€110) in July 2008. Then, almost overnight, things changed - sparked by the global banking crisis. With recession looming, oil prices went into reverse and by October 2008, the cost of a barrel of crude had fallen back to just over $73 (€54). That’s $75 (€56) less than its peak price.
It has slowly climbed since then. In the middle of last week, a barrel of crude oil was around $109 on international markets – still a long way off the record highs of 2008 – but the price of a litre of petrol in Ireland was breaking records all over the place.
The cost of keeping a car on the road has climbed dramatically since the beginning of the year and at many stations, petrol is over €1.50 a litre, or over 40 per cent more expensive than its lowest point in the current fuel cycle. In the middle of last week, the average per litre price was a fraction under €1.50, while the average cost of diesel stood at just under €1.46, according to the price comparison website, pumps.ie.
When oil on international markets was at its peak in July 2008, a litre of petrol here cost €1.36 – 14 cent less than it costs today. How is that possible? Could it be that the petrol companies are profiting? There is a great – and true – story about an Irish petrol station owner who, after hearing a story on the news about the rising price of a barrel of oil on international markets because of another Middle East crisis, immediately sent one of his staff out to increase the price of petrol and diesel on his forecourt.
Industry sources insist that such stories are isolated and the industry has been backed by the National Consumer Agency (NCA). It carried out extensive work on petrol pricing two years ago and found that Irish petrol companies were not artificially inflating the prices.
Its examination of the relationship between internationally traded oil prices and prices paid by consumers here found that attempting to make direct comparisons between fluctuations in crude oil prices and petrol and diesel pump prices was “not meaningful or accurate because it does not reflect the reality of the petrol and diesel supply chain”.
It said that a more accurate picture of how prices worked could be drawn by comparing fluctuations in Platts prices – the price paid by wholesalers for refined oil products, such as petrol and diesel, and prices on the forecourt. Platts is a provider of energy information including crude oil and refined prices.
It found that, at national level, there was “little evidence to suggest unwarranted delays in the passing on of wholesale price changes, as distinct from crude oil prices, to the consumer at the pump.
The turmoil in North Africa in general – and Libya in particular – has been responsible for some, but by no means all, of the volatility in recent weeks. It is actions much closer to home which have a much bigger impact. The AA’s Conor Faughnan is certain the culprit is the taxman. For every €20 a motorist puts in the tank, the Government takes €14. He points out that there have been four fuel tax increases over the past 18 months, including excise increases of 12 cent and a carbon tax of slightly more than 4 cent.
He is particularly withering of the carbon levy and dismisses it as “just another tax” despite its green credentials. The increases have hit Irish consumers hard and will also have a negative effect on the State’s coffers, he claims.
He has repeated his call to the Minister for Finance Michael Noonan to cut the excise on motor fuel. Nearly two thirds of Irish fuel prices are swallowed up in taxes, so forecourt prices here are not as sensitive to upheavals in oil producing countries as in the US where less than 10 per cent of the forecourt price is made up of government taxes.
Faughnan is trying to convince the Government to remove the most recent excise hikes and he points out that if all such increases since 2008 were reversed, fuel would fall to just over €1.30 per litre.
The impact of the turmoil in Libya on prices has been overstated in some quarters and markets were quickly able to replace the gaps the crisis left in their inventory with crude from elsewhere. Global markets, however, do remain concerned that significant unrest could break out in Saudi Arabia.
“The investment market is very nervous looking at street protests in Saudi,” one industry expert told Pricewatch. “It really is the elephant in the room and if anything happened in there, oil prices could really shoot up”.
According to Faughnan, the average Irish motorist uses 150 litres of fuel per month, based on doing 12,000 miles per year at 30 miles per gallon. That’s a monthly fuel bill of €225. In January 2009, petrol cost 95 cent per litre, and the monthly bill was €142.50.
For every $3 that is added on to the price of a barrel of oil on the international markets, Irish consumers can expect to see a litre of petrol increase by one cent. So if oil matches the record prices of around $150 a barrel it reached in 2008, Irish consumers could expect to pay an additional 12 cent a litre adding a further €216 on to the annual cost of keeping a car on the road for the average motorist.
Faughnan says motor fuel usage has proved “astonishingly robust and inelastic” up to this point but he says there is a limit to how much people can absorb, and drivers are finally beginning to change their behaviour.
Nearly half of the respondents to a recent AA poll of 23,000 Irish drivers said they planned to reduce the number of kilometres they will drive this year in response to rising fuel prices.
It is worth bearing in mind that Irish drivers are still comparatively well-off when compared with those elsewhere in Europe. In February, when petrol cost an average of €1.44 a litre in the Republic, drivers in France were being asked for €1.66, while the Swiss were paying an even more eye-watering €1.71. Even in Portugal, where people earn significantly less than here and virtually everything is much cheaper than in the Republic, drivers had to pay €1.50 a litre.
SPEND LESS ON PETROL
* Fuel prices can fluctuate by over 10 cent per litre depending on the garage, so by choosing wisely you can knock over 10 per cent off your annual petrol bill. Check out pumps.ie for prices or better still, if you have a smartphone download the pumps.ie app and it will work out where you are and point you to the cheapest garage in the vicinity.
* Get out of the habit of simply filling your tank by throwing €20 worth of fuel in, as and when you need it. Instead always buy a set number of litres each time you visit the forecourt. By buying 40 litres of fuel, instead of €40 worth, you very quickly become aware of the price gap between garages.
* The more you accelerate and brake, the more fuel you waste. By driving at a nice steady 80km/h instead of changing speed frequently, you will burn about 25 per cent less petrol.
* Empty your boot and take the roof rack off the car. The heavier the car, the harder it has to work and the more fuel it needs. Roof racks ruin the carefully constructed aerodynamics of the car and increase your fuel bills.
* Make sure your tyres are at the proper pressure and clean your air filters – if they become clogged, they restrict airflow to the engine so fuel consumption is increased.
* Cycle or walk. Don’t automatically hop in the car at every available opportunity, it’s costing you money and polluting the planet.
* Use the bus. Based on today’s prices, a person driving between Kells and Dublin as part of a daily commute will spend around €4,000 a year, excluding standing charges, parking charges, toll charges and servicing. Dublin Bus has been quick to point out that if the same person takes the bus it will cost €2,448 a year – a saving of over €1,900.
