37m drivers still face the scourge of rising oil prices
BRITAIN’S army of 37m car and van drivers face the grim prospect of surging petrol and diesel prices at the pumps. Global prices for crude have hit the highest level in four years – rising above $85 a barrel at one point – driven higher by American sanctions on oil-producing giant Iran.
With motorists already suffering, any plans that Chancellor Philip Hammond had of raising fuel duty are now dead.
Indeed, Theresa May chose to make the extension of the nine-year freeze on fuel duty a centrepiece of her Birmingham conference speech.
The Prime Minister’s decision was enthusiastically welcomed by the Fair Fuel Campaign which lauded May for ‘seeing common sense’ and overruling the Treasury, which will have to look elsewhere to help fund the £20bn extra the Tories are promising the NHS for its 70th birthday.
Drivers in the UK are among the most heavily taxed in the world, and face some of the highest fuel duties, in spite of a Tory freeze. Around 61pc of the cost of a litre of petrol on the nation’s forecourts already ends up with the Exchequer. Fuel duty alone, of 57.95p a litre, raises £28bn a year.
Unfortunately, the forecasters have wrongly dismissed the power of oil exporters to manipulate prices and hit us in the pocket.
In early 2017, an unholy alliance of Saudi Arabia and Russia was faced with falling income from oil exports. To combat the threat to their prosperity they brought in radical production cuts. The law of supply and demand applied: the less oil that was pumped, the higher the price rose as it became a more precious commodity. That contributed to a jump in price from just $27 a barrel at its low point in 2016 to above $80 a barrel. The price of Brent crude is on course for its fifth consecutive quarterly increase, the longest such period of rising prices since 2007, when it peaked at $147.50.
The recent jump is provoking concern on both sides of the Atlantic, with President Trump appealing to Russia and Opec to expand production. The last thing he needs in the run-up to mid-term elections in November is a backlash from motorists.
Reuters reported yesterday that Trump’s ‘friends’ in Saudi Arabia are listening and have agreed to raise production but so far there has been minimal impact.
Trump bears some responsibility. His decision to isolate Iran over its spread of terror has made other nations nervous about dealing with Tehran. The slowdown in Iranian production is occurring even though the United Nations ruled Trump’s sanctions illegal. Another factor hurting British drivers is the slide in value of the pound to $1.30. Oil is denominated in dollars, which means every fall in the value of the pound pushes up market prices and the cost to consumers.
The drop in the pound in recent months is largely attributable to the political uncertainty engendered by Brexit negotiations.
MOTORISTS are also impacted by a ‘rocket and feather’ approach, where the cost of petrol and diesel rises like a rocket immediately when the price of oil increases but when it declines, they see little benefit as prices fall like a feather – an affront to every driver.
The steep rise dates back to last May, when it jumped 6p a litre, the most since motoring organisation RAC began monitoring 18 years ago. The price has gone up a further 3p a litre in the last month or so.
The RAC blames a ‘punitive combination’ of higher crude oil prices and a weakened pound. The best hope for many drivers is that there’s a local Asda or Tesco selling fuel. They charge much less than Esso and Shell garages and are often the first to lower prices, to tempt people to visit their food stores.
Anyone unfortunate to need to fill up on the motorway faces the highest prices of all – an average premium of nearly 20p a litre.
One of the most puzzling aspects of the price rise is that no one saw it coming. Last year, socalled experts began to believe prices, in the $30 to $40 range, were with us for ever.
In this era of fewer garages and less choice, there is a palpable public anger over exploitation. Higher prices have a damaging effect on just about every driver and company because climbing fuel costs act like a tax on the whole economy. They raise consumer prices, which in turn risks higher interest rates and potentially threatens recession.
May, sensibly, has announced the fuel duty hike is off the agenda. Failure to have extended the freeze would have been an act of contempt towards every motorist in the country.