Friday, 1 July 2011

What Goes Up Might Come Down

The price of Brent Crude is tumbling. We should be celebrating, no? I for one shall not be digging about in the garage for my spare jerry cans to fill up on cheap fuel down at my local forecourt. Why? Because the price hasn't changed.

It will have come as a surprise to nobody that finally both Ofgem and the Federation Internationale d'Automobile have both this year investigated the prices charged by fuel suppliers compared to the price of their raw product, with the latter writing to the EU to complain in June.

Ofgem recently announced that for the first time it has evidence that energy companies are hiking their prices faster when costs have risen than they lowered them when costs fell. Wow. Who knew? It does make one wonder what Ofgem do with the rest of their days.

The two most obvious industries whose profits depend on the rise and fall of crude oil are our energy providers and our fuel providers; in many cases much of a muchness. It would take an averagely computer-literate ten year old to find a graph depicting the rise and fall of say, Brent Crude and the prices on the forecourts for the last few years. I borrowed such a ten year old and he found me these: petrol (here) oil (here). Fear not, I have returned him.

Raw product (oil) accounts for only about 1/3 of our pump price. We have the Government to thank for about 65% in tax (is there an easier way to collect tax?), a percent or two to the retailer and the remainder to the refiner. Numbers vary by business model, but it's around there.

The peaks and troughs of the price graphs certainly roughly marry up in shape, but do they in size? You may remember everyone crying when petrol went through £1 a litre in late 2007. Crude oil was at about 80 dollars a barrel. It peaked in mid 2008 at just shy of 147 dollars when petrol prices were about £1.20. Then when crude oil fell to sub 40 dollars a barrel the motorist had brief respite at just below the £1 mark again, when ratios would have had it nearer 70p. Recently we've been up in the 125 dollars a barrel region and the average forecourt price has been over £1.40 or thereabouts.

Now we have an oil price approaching the 100 dollar mark, so we can safely assume the price should be tumbling with it. Now whenever there is a price rise in oil, it gets passed on essentially instantaneously, yet when there is a drop we hear excuses. I'm sure companies do hedge on prices and buy in advance, so if there is a sharp drop they will be selling petrol or energy fuelled by more expensive oil they bought before the drop. However, by that model when prices of oil rise there should be stockpiles of cheaper oil to keep prices lower. But you and I know it doesn't work that way.

Price of unleaded at the recent peak at my local BP when oil was 126 dollars? 136.9p per litre. Price last week with an oil price of 105 dollars? 136.9p per litre. But we're all British so we bend over and take it without so much as a trembling of the lower lip. You wonder what the point is of having an Ombudsman who can stare such sharp dealing in the face and ignore it day in, day out. It's enough to make you want to take the train, if it wasn't so crap and expensive too... 

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