Not all that long ago the nation, in that very peculiar British way, was almost riled into action over the price we pay in the UK for petrol, various social media groups burnt bright and strong for a short time as we neared the dreaded £1 per litre. The boycotting of certain branded petrol stations was mentioned with the notion that they would surely have to reduce their prices if nobody was buying their product. Much in the same way we all talked about boycotting Starbucks recently.
But that was never going to happen in reality was it, their coffee tastes too good and where else are you going to go after a hard day’s shopping on a cold winter’s day before you trek to your car for the journey home? Ah, yes your car. The biggest luxury most of us will ever own but one that we must now decide more carefully when to use and when not to.
In 2000, farmers and lorry drivers made their dissatisfaction at increasing fuel prices public with blockades of various oil facilities across the UK causing disruption and long queues at the pump. Whether this was directly responsible for a subsequent fuel duty freeze we will never really know, but further action in 2005 and 2007 tended to cause more panic buying rather than much else of note.
By January 2009 petrol sat uncomfortably at 82.9p per litre, and by May 2009 it had risen by another 13p per litre to 95.9p. This March unleaded petrol will cost you on average 136.9p. That’s a rise of just under 50% on 2009 prices, with the added bonus of an average 5p rise in the past month alone. To add more controversy to the mix, this year the Chancellor of the Exchequer is scheduling a rise on fuel duty that will increase petrol prices yet again.
To understand what is happening with this precious commodity we need to break all the factors down into bite size segments. The world is in economic freefall at the moment, and in many sectors of business it is the exporting of goods to the newly rampant markets in China that is the one bright hope on the horizon.
But China is not a sponge and will not continue to soak up all our woes – the market is already slowing down and economic growth is being capped.
If you add to the global economic down-trend the failing strength of the pound compared to the dollar and the crisis starts to take shape. A weaker pound means higher petrol prices, because oil is bought by the dollar and British companies buying oil are now finding that the relative cost has risen. And regardless of the strength of the pound, oil prices are rising in any case and this extra cost naturally gets passed on to the long-suffering public.
Last August This Is Money did a comparison table of the top ten countries where petrol is the cheapest. It probably won’t come as too big a surprise that most of that top ten was made up of countries from the Middle East, countries like Libya, Bahrain and Iran. Top of the pile was Venezuela where the price of a litre of petrol was a lowly 8p. It was the second year in a row that Venezuela had beaten the Arab countries to the top of the pile.
While we in the UK considered a social media driven boycott of petrol stations but never actually got round to it, in Venezuela in the late 80s the citizens rioted due to an increase in the price of their petrol. Let’s not get carried away though, wages are much lower in Venezuela compared to the UK. But in August 2012, the average Venezuelan was using just over 2.7 per cent of his or her wage packet to fill up the family car. This directly compares to just over 10 per cent for the average Brit.
Let’s not think the Americans have it all their own way either with their big gas-guzzling V8s on wide-open roads. Just because crude oil is bought by the dollar it doesn’t mean it’s all plain sailing for the USA. If the economic crisis means that the value of the dollar falls, then the effective cost of crude oil rises and as in Britain, the extra cost is then soaked up by the American public. But having said that, the price of a litre of petrol in America is still only around the same price as a litre was in Britain ten years ago at just under 80p.
You might be surprised to learn what makes up the cost of your average litre of petrol. The actual product itself currently costs around 48p, now add about 22p worth of VAT onto that and we have a grand total of 70p – not far off the cost that you might find in America today. So what about the rest of it? That’s made up entirely of fuel duty – minus 5p for delivery/retailer costs.
In December 2012 the chancellor dropped plans to add a 3p per litre increase to fuel duty, but it looks unlikely that this stay of execution will continue too far into 2013. And in case you were wondering, fuel duty raises an annual £27bn a year for the Treasury.
As a nation, we seem to have given up the fight. Maybe it was futile in any case. After all, oil rules the world and probably fuels how fast it spins as well.
Petrol protest image from liverpoolmuseums.org.uk