Adding fuel to the fire
THE RISING OIL PRICE
INFLATION is on the way back and motorists will see the impact whenever they fill up at the pumps, with petrol 22p a litre more expensive than a year ago.
It now costs £12.10 more to fill up a 55-litre tank than this time last year, and price rises could accelerate as top commodity traders including Goldman Sachs predict crude oil could soon hit
$100 a barrel, up from today’s $74.
The oil price has roughly doubled since Covid vaccine breakthroughs in early November, as traders anticipate economies will open up and travel restart.
Think Markets market analyst Fawad Razaqzada said the oil glut built up during the pandemic has almost completely gone: “As well as a stronger recovery in demand, the OPEC+ alliance has kept supply in check.”
Oil majors are shying away from further fossil fuel exploration as the world shifts to renewable sources such as wind and solar, a vital step in the fight against climate change but one that may squeeze shortterm supply.
The oil price recovery has boosted oil giants such as BP and Royal Dutch Shell, good news for investors who hold these FTSE 100 dividend payers in their pensions and stocks and shares Isa funds.
Jason Hollands, managing director of investment platform Bestinvest, said oil hit
a low of around $20 a barrel last April and its rebound was a prime factor in last week’s inflation figure, which showed consumer price growth rising to 2.1 per cent in May. “This will squeeze many households, especially those whose income has been hit by furlough, unemployment or pay cuts,” he said.
Higher energy costs could also force up heating bills, with a £100 rise in the energy price cap likely this autumn, said Dr Craig Lowrey, senior consultant at analyst Cornwall Insight: “The UK has experienced a considerable rise in wholesale energy costs, which we expect to be passed on to customers.”
Motorists are already feeling the pain after the biggest annual pump price increase for 11 years, said RAC fuel spokesman Simonwilliams.
A litre of unleaded now averages 129.27p across the UK, slightly higher
than before the pandemic, while diesel costs 131.59p. “A full tank for a 55-litre family car will set drivers of petrol cars back £71.10 and diesel cars £72.37.”
Supermarkets now sell around 60 per cent of all fuel in the UK, and the big four chains charge around 4p less per litre. Williams said: “Filling up on the motorway will set drivers back 146.78p for a litre of petrol and 149.59p for diesel.”
That will push up the cost of a staycation, as millions plan to hit the roads this summer. He added: “We urge retailers not to take advantage of drivers and fairly reflect what’s happening with prices on the country’s forecourts.”
The biggest cost is tax, with fuel duty andvat making up 61 per cent of the pump price, RAC figures show. Fuel duty is levied at a flat rate of 57.95p a litre, which means motorists face a heavy burden whatever happens to the oil price.