08 Jan 2015
Posted by Miriam O'Neill 
By Conor Faughnan
Oil has been one of the big stories of 2014. After four years of stability the global price suddenly dropped like a stone, down from $110 per barrel to about $60 and looking very shaky.
That’s a 45% drop in 5 months. For us it is a little less because the Euro fell against the dollar at the same time but it still works out at 38%.
This is a mixed blessing for the globe. If you are in Venezuela or Russia the sudden fall is disastrous, knocking huge chunks off national wealth. For us it is more encouraging – we don’t have any oil of our own and we use lots of the stuff. Falling prices are good for Ireland and the Irish consumer.
But prices are falling in part because of pessimism about the world’s economy. If that comes true then a struggling America, Britain or Eurozone does us no good at all.
The question the AA gets asked most is whether Irish drivers are getting the full benefit of the price fall or whether we are being ripped off.
Let me be clear – we are being ripped off. We are being gouged, fleeced, taken to the cleaners. But the ones doing the fleecing are the Irish government not ‘big oil’. I don’t trust big oil and they do need to be watched but for us the bigger problem is tax.
Most of the tax on fuel is charged per litre so it doesn’t go down when the price falls. This means that the 38% drop in oil prices has only worked out as 8% for Irish motorists.
When you spend €1.40 or so on a litre of fuel the garage gets maybe 4 cent of that. The wholesaler might get 8 cents. The Irish government gets 90 cents, straight off the top, making profits that would have embarrassed Rockefeller.
Irish taxes have become much worse in this recession. Since the emergency budget of October 2008 there have been 5 separate tax increases on both main fuels adding about 23 cent per litre to each. A tax –free litre of petrol would only cost about 50 cent.
It is still worth being very sceptical and looking closely at what makes up that 50 cent. There are genuine costs like shipping and refinery manufacture; there is also less genuine skimming and scamming going on as huge volumes are bought and sold on international commodity markets.
There are also other games being played. When the oil price is high it makes the economics of looking for alternatives much more attractive. The Americans are producing more oil now than they have for the last 30 years because controversial techniques (at least in this part of the world) like fracking are profitable when the price is high.
Hence when OPEC say that they will allow prices to fall they are not doing so to be kind to you and me as we drive around Ireland at Christmas. They are preserving their advantage by reducing the attractiveness of oil that is more expensive to produce.
This can’t last forever. It has taken the planet some 380 million years to produce the global stock of oil. Humanity has been using it for a little over 150 years and half of it is gone. The 21st century will have to see us move to alternative sources of energy if we want growth and progress to continue.
But in the meantime it would be nice for us motorists to get the benefit of the falling price. Unless the government does something about our high local taxes we won’t.
