Market to get extra oil but price cuts unlikely

By Robert Harris

FUEL prices are unlikely to fall significantly despite 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. By close of play on Tuesday, the price had eased to $32.48. But bigger falls are needed.

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, says 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.

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. But, despite this weeks widespread protests over the high tax levels, Prime Minister Tony Blair said he could not and would not alter government policy on the matter.

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, says spokesman Geoff Dossetter.