15 September 2000
Fuel prices unlikely to fall soon
By Robert Harris
FUEL prices are unlikely to fall significantly despite the fuel protests and this weeks decision by exporting countries to pump more oil.
Ministers from the Organisation of Petroleum Exporting Countries agreed to produce 800,000 extra barrels of crude a day from 1 October.
But the market effectively shrugged off the news.
It is an open secret that OPEC members have been producing more than official figures suggest, so the net gain may only be about 300,000 barrels/day.
Brent crude futures, a world oil price barometer, recently topped $34/barrel for October, a 10-year high. The price has since eased but bigger falls are needed.
Further increases in output are theoretically possible when producers meet again in November. But many countries are already pumping at or near capacity.
A big demand for heating oil as winter approaches and low oil stocks in consumer countries are compounding the problem.
The price of red diesel, which only attracts about 3p/litre in duty, follows crude price values closely. It now costs about 25p/litre, twice year-ago levels.
“I can see the market remaining firm for some time,” said Mike Crozier, supplies manager for Total Butler. “Oil reserves have dried up in the US, and it wont be able to rebuild stocks before the winter.”
John Griffith, chief executive of co-op supplier ACT, suspects prices may drop back to about 20p/litre if crude falls to $28-30/barrel this winter.
“But I dont see it going much lower. I cant see what can suddenly change.”
Bulk derv now costs 65-70p/litre, up one-third compared with 12 months ago. Fuel duty and VAT account for about 75% of the price.
Despite widespread protests over the high tax levels, Prime Minister Tony Blair said he “could not and would not” alter government policy on the matter.
But, with little relief on the crude market in the offing, it is the only lever available to reduce prices, according to critics of government policy.
They point out that Treasury coffers have swollen by about 4bn, the equivalent of 8p/litre, since March when the government last calculated duty.
Back then, oil was worth just $22/barrel.
The Freight Transport Association, which represents hauliers, describes prices as unsustainable and is calling for a 15p/litre cut in duty.
“High domestic fuel duty is something the chancellor must address as quickly as possible,” said association spokesman Geoff Dossetter.
The impact of high derv prices on farm costs are obvious, but there are also hidden costs through the food chain, said NFU transport adviser Mark Bratt.
On a more hopeful note, recent events have shown how badly the government has misjudged public opinion over fuel prices.
Given time, ministers could change tack without losing face.
“Reading between the lines, I think we will probably see some concessions at the next Budget,” said Mr Griffith.
- Fuel Protests – News Update – 15 September 2000