Year from hell for fuel prices, but blame government not local garages

Irish motorists suffered the year from hell for fuel prices in 2011 and as we start the new year the prospects are not good, according to the AA. European wholesale prices are rising as the weak Euro falls against the dollar. Demand for oil products looks flat in Europe because of weak growth forecasts but still prices are rising.

“It may be illogical in a weak economy but European fuel prices are high.” Says Director of Policy ConorFaughnan. “European fuel is refined to very exacting specifications and in recent years refineries are complaining of very tight margins. Three European refineries are due to close shortly because of credit problems*. The upshot for us is that between the unavoidable effects of international prices and the own-goal of super-taxes imposed by the Irish government it will be Irish drivers who pick up the tab.”

Irish fuel prices closely track the world and European markets except when the Irish government adds more taxes. The AA has carried out a comparison of world oil prices, the Euro movements against the dollar and retail prices paid in Ireland. The data shows that despite many motorists’ suspicions the retail price in Ireland does suggest healthy price competition but the State’s regular interventions are pushing prices ever higher.  

“Vast fortunes are made from fuel, no doubt about it.” Says Director of Policy Conor Faughnan.  “However they are not being made by local garages in Ireland.”

 “2011 was the year of record high fuel prices for Ireland, in no small part due to the four consecutive fuel tax hikes, and frustration among many motorists reached fever pitch.”  Says Conor Faughnan, Director of Policy, AA Ireland.   “Time and again we’ve seen these frustrations directed towards Irish retailers, however what many people don’t realize is that their profit margins on fuel are in fact very small.  Local prices are essentially driven by two things – taxation and the price per barrel of oil.”

In their study, AA Ireland map their monthly fuel index figures for both petrol and diesel against the average monthly price per barrel of Brent crude oil, in euro prices based on real time exchange rates since the beginning of 2008.  The outcome of which is three near identical gradients which see a spike during April of this year when Brent reached $114 per barrel up from just $45 in January 2009.  At the same time, motorists in Ireland paid a record €1.53 and €1.46 respectively per litre of petrol and diesel equating to a 56% increase for both since the start of 2009. 

“While there’s no way of accurately predicting Brent crude oil prices for the year ahead, we can look at some elements of the equation.” Says Faughnan.  “For example, OPEC have agreed to keep production levels unchanged for  2012 while demand for oil in China, the world’s biggest importer of oil, is expected to grow by 6% during 2012.  The performance of the dollar against other major world currencies is also another factor that will impact Irish fuel imports in the year ahead.”

Examining the effects of increased taxation on domestic fuel, AA Ireland identifies a slightly steeper gradients for petrol and diesel than Brent in correlation with the introduction of tax hikes such as Carbon Tax in December 2009.

*Independent Swiss refiner Petroplus is to shut three of its refineries because of credit problems. See Reuters reports at the links below:

http://af.reuters.com/article/energyOilNews/idAFL6E8C31E320120103

http://www.reuters.com/article/2011/12/30/petroplus-idUSL6E7NT3LH20111230

Ends

Notes to the editor;

Fig. 1 Comparison of average monthly price per barrel of Brent crude oil against the monthly average price of unleaded petrol and diesel in Ireland.  

Fig. 2 Summary of price shifts surrounding fuel tax increases in Ireland:

[1] Average monthly Brent Crude Oil prices sourced from: www.indexmundi.com/commodities/?commodity=crude-oil-brent

[2] Average monthly diesel and petrol prices sourced from the AA Ireland Monthly Fuel Price Index: www.aaireland.ie/AA/Motoring-advice/Petrol-Prices.aspx