Petrol &: Diesel Prices end on a year low
At long last prices are falling at the pumps, ending a chaotic year with prices that come as a blessed release after the peaks of Summer. The current average price is 103 cent for petrol and slightly more for diesel. Indeed if it wasn't for the 8 cent per litre increase in excise duty we would already be down below €1 (which is available in some garages). The last time we saw prices this low was in April 2005. Don’t be fooled though. There are still dark & sooty clouds on the horizon for those – ie all of us – affected by the price of fuel.
2008 will be remembered for all sorts of reasons, not many of them good. With the credit crunch, the financial crisis, the recession and the property bubble it’s easy to forget that nine months ago the main problem people were talking about was the surge in energy prices, especially oil. World prices had surged to $148 on world markets in July and August. That saw our fuel costs shoot up by 15% for petrol and 23% for diesel, with average pump prices at 133.5 and 143.8 respectively.
The extra rise is diesel was one of the features of the year, as we discussed in our June edition of the ezine. Oil prices have continued to fall internationally as the downturn gathers pace. With prices now down to $55 per barrel the prospects, at least for the next few weeks, are for prices to keep on falling. It’s a relief. This makes a substantial difference to almost every family in the country.year and achieving 30 miles per gallon* the difference between the July price and today’s works out at €10 per fill or €30 per month. For diesel users the difference is even greater.
All of which looks good as we end the year but if 2008 has taught us anything it is that we cannot be certain of oil prices any more. Shocks will happen again. Oil is finite, expensive, imported and polluting. Our strategic dependence on it is appalling. Our per capita consumption is 50% greater than the UK, and is two thirds of the per capita figure for US consumption. If our population was 100 million we would be using more oil than China. To put it mildly, this is not strategically very clever.
And for us on the front line, it seems that the only thing we be sure of is uncertainty.
Where do the prices come from?
A 66% drop in oil prices does not mean a 66% drop at the pumps. This is mainly because of taxes, the excise duty component of which does not fall when the price falls. Both VAT and Excise Duties are applied to fuel. Excise Duty is levied on the volume of fuel and is not related to its price. Excise duty on petrol is 52.268c per litre (since October 14th) and 38c per litre on diesel. VAT is levied at 21% of the price of fuel.
The practical effect is that about 70% of the price of petrol and 65% of the price of diesel is tax. Small wonder that it raise more than €2 billion per year.
Is there fair competition?
Despite the price falls, motorists countrywide are sceptical as to whether prices have fallen enough. They remain deeply suspicious that prices do not fall as fast as they rise in response to oil price movements. The AA is monitoring this closely in co-operation with other AA-type clubs across Europe. There is no clear evidence of rip-off, especially not at the level of the local garage. But then there is no clarity at all about prices, where they come from and how they are set. Our work in this area is ongoing.
Local service stations do compete vigorously enough but on the supply side, particularly when buying fuel internationally, is more complex.
How does the AA Price Survey work?
The AA has been surveying fuel prices ever since the old maximum order was lifted in the early 1990s. Using AA resources prices are obtained for a statistically significant geographical spread of service stations to generate a regular measure of prices monthly. Our figures have been running for years and years. We always measure in the second week of each month, even though frequently prices are moving far faster these days. The monthly index ticks away over the years, like the CPI figures to which it contributes, and is a very useful figure to have for all sorts of reasons.
Nowadays wholesale fuel prices change as often as twice a week. While the monthly index remains we will be including more and more fuel price information from next year.