By Conor Faughnan
While we don’t want to spoil your Valentine’s Day, unfortunately its likely that the seven-month run of consecutive fuel price drops at our forecourts is set to come to an end.
The latest AA fuel price survey shows that the average price for a litre of petrol is now 128.4 cent and diesel 122.4. That is down again on the January figure but unfortunately that is probably the end of the good news for the time being. Oil is creeping up again.
If you want to predict what fuel prices will be like in the next few weeks it is not terribly hard. You look at what oil costs right now and at the exchange rate versus the dollar, and then you also factor in things like the European wholesale rate for refined product. You can also get an indication of future demand for fuel and how much stock is available.
Looking at all of this we are fairly sure that in two or three weeks’ time we will almost certainly be paying a little more than we are now. Probably not a huge difference but likely to be a few cent per litre unless something really surprising happens.
We are often asked whether Irish fuel retailers accurately pass on real price movements to customers. The most common theory, available from a bar-stool near you, is that prices go up immediately and come down slowly.
While you certainly have to watch that and it is entirely possible we actually don’t see much evidence of that pattern when we look for it.
The AA surveys the price of petrol and diesel nationally once per month and has done so ever since the price was deregulated in October of 1991. That monthly measure is taken in the second week of each month and we then calculate a national average figure. This forms an index that is useful to track.
An average can be deceptive though. At the edges there are garages that are too dear and motorists who are conning themselves by not shopping around. But to be fair overall we do see Irish prices tracking international ones fairly faithfully.
Oil tumbled for months.
In the summer of last year oil cost about $110 per barrel and it had been remarkably stable at that level for about four years. It did wobble a bit but not hugely and that seemed set to continue. Then for reasons that could fill books** let alone column inches it began to fall.
It kept falling month on month tumbling all the way down to $48 dollars or so in early January. It then steadied at that level and has actually picked up a bit since. It is now a bit over $50 and we’ll have to wait and see how stable that proves to be.
At the same time we have had the Euro weaken substantially against the dollar. Again the reasons are long enough to fill volumes and you can read plenty of conflicting opinion if you like but the practical effect is that it takes more Euros to get the same amount of oil. In fact the Euro has dropped about 5% or so since the turn of the year.
Knowing all this we can say that the price will trend upwards in the next few weeks.
Predicting what the price will be in five weeks’ time is an entirely different matter. For that you need to know what will happen to oil and the dollar tomorrow. I have joked before that if I knew that I would be on a beach somewhere sipping a cocktail and counting my millions.
We can speculate of course. We can look at what the situation is now and make an educated guess. We can gamble millions on the outcome if we want; that is what speculators do.
But anyone who tells you with certainty what the oil price will be next Autumn is not being much more scientific than the guy who tells you on Valentine’s Day that we are in for a White Christmas.
**OPEC, hugely influenced by Saudi Arabia, is refusing to reduce production in response to weak demand and is therefore allowing the oil price to fall. This might seem daft but they know it is hurting others more than it is them. Russia has seen a disastrous drop in its foreign earnings as the value of its oil falls and the fact that it is less efficient as a producer means they are worse affected. The Americans meanwhile are producing more oil (through fracking) than they have in 30 years.
Anyone who speculates about the motives of Obama, the House of Saud and the fact that it punishes Putin for Ukraine & Crimea could be right or wrong for all we know. Feel free to write your own book…