Clueless journalists claim $250 oil would mean £2.30 petrol

[meester]

Why don't they find some journalists that understand maths instead of scaremongering?

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/11/npetrol111.xml&CMP=ILC-mostviewedbox

Oil prices are to almost double to $250 per barrel, the chief executive of the world’s largest energy company has said, predicting a rise that would send the cost of unleaded petrol up to £2.30 per litre.

Er, no.

The price of petrol is made up of:

Excise duty 50.3p +
Transport, marketing, profit (a fixed cost) +
The price of oil +
VAT @ 17.5% on all of the above
= 117.2p average

Hence tax is 67.8p at present. This leaves 49.7p for the profit, transport, manufacture, and cost of the crude.

According to the UK Petrol Industry Association (http://www.ukpia.com/industry_issues/marketing/faqs_petrol_retailing.aspx), about 5p goes to the retailer, transport, marketing, etc. In the US, the cost is about $0.25 per US gallon (http://www.energy.ca.gov/gasoline/margins/index.html), so about 3p/litre.

That means that out of 117.2p petrol, crude costs amount to just 41.7p.

If this doubles, the price of petrol will have a natural increase of 41.7p + VAT = 49p

That makes £1.66. Not even remotely close to £2.30/litre.

And of course given that taxation would make up 75p of that, the government, even at $250 barrel, it would be possible to sell petrol at less than £1 a litre. There is no crisis, not here, it's purely a governmental creation.

[Conor]

Doesn't work like that. The price per litre has more to do with what they companies think they can get away with charging than the price of the crude component of a litre. It's also not a governmental creation at all but is in fact the creation of investors and speculators.

[Hintza]

Guess we just have to be greatful that our fuel is taxed so much protecting us from the bulk these prices rises....:rotfl:

They will put some spin on it to that effect.

[meester]

Doesn't work like that. The price per litre has more to do with what they companies think they can get away with charging than the price of the crude component of a litre. It's also not a governmental creation at all but is in fact the creation of investors and speculators.

Not sure what you are talking about. It's a simple indisputable fact that most of the price of petrol is tax.

Also that while the price of crude is determined by speculators and suppliers, the oil companies cannot start charging $100 a barrel if the market price is $20. They are subject to market forces. Petrol prices are based on tax first and foremost, and on the cost of crude second, 'greedy oil companies' not at all (or not more than few pence per litre).

[meester]

Guess we just have to be greatful that our fuel is taxed so much protecting us from the bulk these prices rises....:rotfl:

They will put some spin on it to that effect.

it wouldn't be so bad without the 17.5% gearing due to VAT

[Hintza]

it wouldn't be so bad without the 17.5% gearing due to VAT


Aye that's true

[Pew Pew Pew Lasers!]

Not sure what you are talking about. It's a simple indisputable fact that most of the price of petrol is tax.

Also that while the price of crude is determined by speculators and suppliers, the oil companies cannot start charging $100 a barrel if the market price is $20. They are subject to market forces. Petrol prices are based on tax first and foremost, and on the cost of crude second, 'greedy oil companies' not at all (or not more than few pence per litre).


Fuel prices are based on oil prices first, tax second. That tax is the most part of the price at the pump does not change that.

[MX5huggy]

Doesn't work like that. The price per litre has more to do with what they companies think they can get away with charging than the price of the crude component of a litre.

Not true petrol has to be one of the most competivley priced products, thats why the forcourt price tracks the crude price so closely, and we all know which station is cheeper and will drive to get cheeper even if it will only save us 40p. I don't know which supermarket is cheeper for 2 pints of milk, a loaf of bread or a dozen eggs but I know petrol at ASDA is 114.9 and Tescos's is 115.9 today.

It's also not a governmental creation at all but is in fact the creation of investors and speculators.

Indeed wish I had some where to put 10 barrels 10 years ago!!

The other factor is the weekness of the dollar which has protected us some what.

[moonrakerz]

Doesn't work like that. The price per litre has more to do with what they companies think they can get away with charging than the price of the crude component of a litre. It's also not a governmental creation at all but is in fact the creation of investors and speculators.

The price of petrol at the pump does work like that. Just look at the increases in the price of oil and compare those with the price at the pump over the last 12 months.

Totally agree with the OP - don't let the facts get in the way of a good scare story !

[meester]

Fuel prices are based on oil prices first, tax second. That tax is the most part of the price at the pump does not change that.

For most the least 30 years fuel price movements have been almost entirely due to tax and not at all due to the cost of oil. It is only the last couple of years where the movement in the cost of oil has been noticeable in the pump price; but the percentage increase is only about 25%, which is very low considering oil is more than six times its low of a few years ago.

[Idiophreak]

If this doubles, the price of petrol will have a natural increase of 41.7p + VAT = 49p

That makes £1.66. Not even remotely close to £2.30/litre.


I'd love for the maths to be that simple, but I really don't believe it.

Just to clarify, though (I might be wrong)...for this to hold true, the 20p increases we've seen in the last couple of months would equate to a 100% rise in barrel cost - is this actually the case?

Edit: A little bit of reading indicated that the cost of a barrel earlier this year was around 100 - so for $30 increase in barrel cost we've got 20p extra on the pump - so for $120 you'd expect around 80p?

[Inactive]

Doesn't work like that. The price per litre has more to do with what they companies think they can get away with charging than the price of the crude component of a litre. It's also not a governmental creation at all but is in fact the creation of investors and speculators.

I agree with that Conor, it has little to with the cost of crude oil, it is all about how much they think they can get away with, simple maths doesn't come in to the equation.

I would say that the " Clueless Journalist " is about spot on.

[Pew Pew Pew Lasers!]

For most the least 30 years fuel price movements have been almost entirely due to tax and not at all due to the cost of oil. It is only the last couple of years where the movement in the cost of oil has been noticeable in the pump price; but the percentage increase is only about 25%, which is very low considering oil is more than six times its low of a few years ago.

Read what I said again.

[Conor]

Not sure what you are talking about. It's a simple indisputable fact that most of the price of petrol is tax.


Is wrong. Tax, with the exception of the VAT component, is at a fixed price per litre and doesn't increase as the price increases. Out of the 30p/l that's gone on diesel in the last 12 months, only 5p of that has been tax in the form of VAT - the other 25p has gone straight to the oil companies.

[meester]

I'd love for the maths to be that simple, but I really don't believe it.

Just to clarify, though (I might be wrong)...for this to hold true, the 20p increases we've seen in the last couple of months would equate to a 100% rise in barrel cost - is this actually the case?

Edit: A little bit of reading indicated that the cost of a barrel earlier this year was around 100 - so for $30 increase in barrel cost we've got 20p extra on the pump - so for $120 you'd expect around 80p?

If you look at oil cost and petrol prices you have:

Feb 2003. Oil £19.20 barrel. Petrol (ex tax) 19.6p litre
July 2005. Oil £30.88 barrel. Petrol (ex tax) 28.4p litre
Aug 2006. Oil £40.13 barrel. Petrol (ex tax) 36.5p litre
November 2006. Oil £29.51. Petrol 26.1p
November 2007. Oil £43.48 Petrol 36.0p
April 2008. Oil £51.53. Petrol 41.7p
June 2008. Oil £64.59. Petrol 49.1p

Basically, £10 on a barrel of oil translates to 7-8p on pre-tax petrol price, so 9p-10p on the after-tax price.

[moonrakerz]

Is wrong. Tax, with the exception of the VAT component, is at a fixed price per litre and doesn't increase as the price increases. Out of the 30p/l that's gone on diesel in the last 12 months, only 5p of that has been tax in the form of VAT - the other 25p has gone straight to the oil companies.

Your theory on pump fuel prices would be correct if the oil actually "belonged" to the oil companies in the first place. It's rather like saying that all the food in Tesco belongs to Tesco and that no one else is involved in the supply chain from the field to the shelf.

You have also ignored the fact that the oil companies are taxed proportionately on the cost of a barrel of oil so as oil increases in price the Govt takes more. This increase in tax is added to the pump price before the usual duty, VAT etc that we pay at the pump.

[Conor]

Not true petrol has to be one of the most competivley priced products, thats why the forcourt price tracks the crude price so closely,


Wrong. The RETAILERS cut is priced like that but not the suppliers. And if it tracks Crude so closely, why didn't we see a two day price drop when the price of crude dropped slightly the other week to $129 before rising again?

[Conor]

Your theory on pump fuel prices would be correct if the oil actually "belonged" to the oil companies in the first place. It's rather like saying that all the food in Tesco belongs to Tesco and that no one else is involved in the supply chain from the field to the shelf.


But it is BP, Shell and Conoco who are drilling it out of the ground and are selling it on the oil market to the refinery arms of their company. Don't tell me you think BP made £3 billion PROFIT in 3 months on petrol sales alone?

[moonrakerz]

But it is BP, Shell and Conoco who are drilling it out of the ground and are selling it on the oil market to the refinery arms of their company. Don't tell me you think BP made £3 billion PROFIT in 3 months on petrol sales alone?

No I don't think they made £3 billion profit on petrol sales alone - you did !! You are completely wrong in saying that the oil companies make their profits from petrol sales - they don't !

Just look back at the profit reports for all the oil companies issued earlier this year, very little of their profit is "pump" based.

You argument is flawed: to use my previous analogy - you are saying that if Farmer Jones is making a fat profit selling his spuds to the wholesaler then Tesco should be selling those spuds to you at a loss, just because they make a huge profit selling cans of lager.

BP, Shell and Conoco who are drilling it out of the ground and are selling it on the oil market to the refinery arms of their company
You are still perpetuating your own false premise that the oil belongs to the oil companies when they get it out of the ground. Do you really think that the Saudis, Iranians, Nigerians, etc, etc just let BP & Co just walk in help themselves to the oil ?
Your money is going to these people in the main, where did you think they get all the money they spend so lavishly from, Northern Rock ?