Tuesday 16 March 2010

Petrol price home truths: the sickly Pound

You may have seen the Daily Telegraph this morning going big on Petrol prices about to reach a new all-time high. The likes of them and the AA and other commentators have pushed this as the result of speculation and oil company profiteering.

Its cause is neither of these two factors. In fact, oil refining has been losing money for the majors for over a year now, with negative prices for cracking oil; this is due to large overcapacity in Europe and when people try and shut down plants, like Total in France, they get strikes and Government intervention.

So the real cause lies in Oil having appreciated in price by from a low of $30 to today's $78 price, but more importantly, as the graph shows, the collapse of the Pound since the Economic crisis began.

As you can see the Pound is now lower in real terms than at any time in the past 30 years. Lower than the 1985 when it was at parity with the US Dollar crisis and much lower than on the ERM exit in 1982.

This is what our Government have delivered, a humbled currency with no prospect of improvement in the near future. So expect the prices at the pump to keep on rising.


Demetrius said...

If you check out The Oil Drum you will see that the cost of extraction in both money and energy expenditure terms has been rising and is set to rise a lot more. This has some interesting implications.

CityUnslicker said...

it does indeed, which is why my equity investments heavily weighted towards Oil.

Steven_L said...

I've just sold my car so have some readies to invest. Was thinking about stashing some of it in a fund that focus's on oil shares.

Then again, I'm thinking about buying something fun that drinks petrol for the summer like a 306 gti.


Anonymous said...

I wonder if MPs are still recieving the very generous mileage allowance that they used to get, let them use public transport and suffer with the rest of us, after they cannot work and drive at the same time.

James Higham said...

All the same, I don't think the distributors suddenly said, "Oh the crude's dropped - let's drop our prices."

CityUnslicker said...

JH - Supermarkets determine the pump price these day and they sell petrol on 0 margint o get people into their stores.

Blaming distributors is wrong. Speculators accounf or less than 5% of the market, so that is wrong too.

Tax rises accounyt for 80% of the price and the exchange rate accounts for the other bit.

It really is that simple, the arguments you are reading elsewhere are smoke and mirrors.

Electro-Kevin said...

Thanks for the clarification.

Significant that my 1.1 now costs as much to fill as my 1.8 did about three years ago (a ten quid jump)

You'd think the environmentalists would lax off a bit knowing that people are cutting back for economic reasons if not ecological.

CityUnslicker said...

Don;t start on enviromentalists...grr...just take away the enviro to see what you get.

measured said...

I was amused that the BBC left the weakness of the pound as the last factor to mention when describing the reasons for the petrol price rise on the news last night. There were no graphics, unlike your excellent graph. Presumably the BBC have gauged that the appreciation of Labour supporters is more important than upsetting the rest of us. ;-)

Unknown said...

A disappointingly alarmist, provocative and economically illiterate journalism from the Telegraph, again.