Join our community of smart investors
OPINION

Petrol plunder

Petrol plunder
June 22, 2012
Petrol plunder

This is a claim I've heard elsewhere, too - so I took a look at the figures. The chart below is the result.

The pump price is for low-sulphur unleaded and was taken from Department of Energy and Climate Change stats, available on the DECC website. I knocked off the VAT at 20 per cent, then subtracted 57.95p, the current level of fuel duty, from the resulting price. That, I think, gives the pump price net of tax - though do correct me if I'm wrong.

The other values were calculated by taking the Brent crude price in dollars per barrel, dividing by the sterling/dollar exchange rate prevailing at the time, then dividing by 159 - the number of litres in a barrel. That gives a per-litre oil price in sterling.

You can see that the age-old complaint - that oil companies are quick to pass on oil price increases, but take their time with reductions - has some truth to it. The differential between oil cost and petrol price is currently over 9p per litre, relatively high. But if experience is any guide, it'll soon fall back, since petrol retailing is very competitive.

My rough calculations also corroborates what oil companies have long insisted - that they make little or no profit on petrol sales. I've made no allowance for the cost of refining the crude, or transporting it from refineries to petrol stations, or the operating costs of the stations themselves. All those costs have to come out of that 9p per litre margin. The only real winner here is the government, which helps itself to 85p a litre - that's £50 each time I fill up my modest set of wheels. And another fuel duty increase is in the works.

■ Another curiosity of the oil market right now is the difference between Brent, the UK benchmark, and West Texas Intermediate (WTI, the US benchmark). Historically, the latter has traded at a premium because it's lighter and so cheaper to refine. Recently, though, Brent has been at premium to WTI, partly because the physical volumes that support the futures price are declining as North Sea oil dwindles, and partly because of issues about the deliverability of WTI at its obscure pricing point. There's an interesting discussion of this phenomenon and its possible remedies here.