Petrol vs Oil Prices
As cynical Britons we expect to be ripped off every time we turn the corner, and the price we are paying for our petrol is certainly a cause for National Debate. Every other day it seems we are bombarded with news of another hike in petrol prices at the fuel forecourt. What are the main driving forces behind changes in the fuel price per litre?
Firstly, we know that fuel is taxed, but this level of taxation will usually only change, at maximum, once per year. So, this is essentially a fixed cost. Included in this is VAT as well as 'fuel duty'. This totals more than 60% of the cost per litre for unleaded, super and diesel.
Secondly, there are operating costs and profit margins for the petrol station owners. These are typically small a couple of percent of the cost. So, even if a station owner decides to double its operating profit, it may only make 1p change in the total cost and that won't happen very often.
Finally, there are the petrol suppliers (such as Shell, BP), they have to cover the costs of refining, transportation, profit and also the raw costs of the oil itself. It is the oil cost that can cause the price of petrol to fluctuate so often.
The question we ask here is "How well do the changes in the cost of oil per barrel translate into the average price per litre of unleaded petrol?"
Oil and Petrol Prices
The graph below shows how the average Oil Price has varied for the last 18 months, and this oil price is compared to the average price of unleaded 95 in the UK.
It can be seen from the graph below that there is excellent correlation (with an offset due to taxes etc) between the oil and unleaded petrol price. If the price of oil starts to rise, then so does petrol. If the oil prices fall then this drop in price gets passed on to the vehicle owners.
The Price of Petrol in the UK tends to Follow the Price of Oil
Super Unleaded | |||
|---|---|---|---|
Oil price for £1 per litre?
One can see from the graph above that in order for the average price per litre of unleaded to hit £1 the price per barrel of oil needs to be around $80 for 3-4 weeks - given the current level of taxation. When the level of fuel duty increased this October (2007) this threshold decreased to £78 per barrel. Oil is now way above $80 and it is just a matter of time before petrol exceed 100p per litre.
It's worth pointing out that at a more detailed level there will be more discrepancies between the two prices as daily fluctuations in the price per barrel of oil will not always be reflected in the price per litre of petrol due to the large amount of fuel already stored in refineries, depots and forecourts around the country. This fuel 'buffer' can last several weeks.
A good source for finding out what the current and historical price of oil per barrel can be found at the BBC website in the commodities section.
Conclusions
There is obviously a strong correlation between changing petrol prices and oil costs. As the price per barrel of oil goes up so does the cost of unleaded petrol per litre with a short time delay in-between. Different retailers will have different profit margins but overall the price changes are set by the raw material costs (and of course would be altered by changes in the level of taxation set by the government on the pump price)
The historical £1 per litre barrier will soon be a thing of 'fond memories' as we get used to (barring intervention by the Government or an increase in oil supplies by OPEC) paying more than £1 per litre of petrol once the average barrel of oil cost exceeds $80.
This petrol pricing information comes from user submissions using the map below. Please search for your local petrol station and tell us how much you are paying at the pump!
Petrol Price Search
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Date Added: Thursday 24th April 2008
"The thing I cannot find explanation is why the gap between unleaded and diesel has increased so much over the past few months. I recall a year or so ago when the gap was only 4 or 5p, it is now 12p. can anyone explain ?"
Ian S
Date Added: Thursday 17th January 2008
"You have denominated the price of oil in US Dollars. The price of the petrol is denominated in GB pounds. Over the period shown, the dollar has changed in value by 20%. If this is taken into consideration, the gap between oil price and petrol price is widening. This suggests we are seeing less competition in the refining & retailing sector. In fact, the potential profit margins are now huge."
Nick Hill
Date Added: Friday 21st December 2007
"Hi Darren Converting from Dollars to Sterling didn\'t make a lot of difference when I looked at it. The main reason is that oil has more than doubled in price in Dollar terms, but the Dollar itself has only sunk around 20% against the pound."
Admin
Date Added: Friday 14th December 2007
"The details show the oil companies are following crude prices with end product prices. However, it does not take into consideration exchange rates (as oil is bought in US dollars, not £). It would be interesting to see how that changes the graph."
Daren
Date Added: Tuesday 4th December 2007
"The price really needs to be compared on an equal basis, this doesn't take account of changes in exchange rate, the dollar is worth less than it was 18 months ago. "
Stu
