Saudi Arabia’s renewed determination to keep crude oil prices at optimal levels often draws political criticism, but the counterintuitive argument runs that it is largely beneficial – perhaps even vital – to the interests of higher-cost producers across the globe. Industry heavyweights such as Shell (SHEL), ExxonMobil (US:XOM) and BP (BP.) may boast significant interests in the Middle East, but they also operate in regions with relatively high production costs and slim margins.
According to the RAC, the price of unleaded petrol in the UK averaged 165.1p a litre in 2022. The average rate has fallen to 147.1p in the year to date, which is still elevated from a historical standpoint but trending downwards as sterling gains ground against the dollar. The UK fuel duty rate and VAT account for roughly half the retail price, while the proportional cost of bio-content appears to be increasing over time. Combined delivery costs and the retailer margin remain in single digits on a percentage basis, so wholesale prices only constitute about a third of the cost at the pump.
Looking at the petrol price from a different perspective, if you were to simply meet the production costs of a barrel of crude oil from Saudi Arabia, you could expect to pay no more than 6.9p a litre, but probably closer to 5p. This is worth keeping in mind whenever you are trying to appraise the relative cost dynamics of hydrocarbon and renewable energy pricing, but that’s another story.