F0ul Thoughts

Mild mannered on the outside, Free thinker on the inside

Petrol Prices Protest 2010

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There has been a lot of discussion regarding how awful it is that the price of fuel has been going up while the cost of crude oil has been going down.  The protest idea is to force one brand to reduce prices through lack of sales.  However, having done some basic calculations, this isn’t going to work.

Comparing the prices of oil for 2008 and 2010, the prices peaked at $145 and $80 – so it would seem that prices have come down considerably.  However, it was only at $145 for around a week in 2008 and ended the year at $37 a barrel.  The average for the year was in the region of $60 or so.  In 2010, it hasn’t been lower than $70 all year.

The important aspect for UK residents is that oil is sold in dollars($), while the UK sells its refined petrol in pounds(£).
It also takes 6 weeks or so for crude prices to end up on the forecourt.  So, assuming that the price of refining hasn’t changed, and ignoring tax for a second, the major element of price differences is the exchange rate.  In 2007 you could buy $2 for a £.  Today, you can only get $1.48 for a £.  In layman’s terms, the price of a barrel of oil has got 25% more expensive – even if its actual price hadn’t changed.

Tax is the other important element of the equation.  Currently, tax on road fuel is in the region of 56p per litre.  On top of that is the VAT, which is a tax on a tax.  VAT was 15% for the majority of 2009, while now its at 17.5%.  That means that the total tax on fuel costing £115 is 76p (March 2010)

So, this becomes quite difficult because it seems as if the real villain is not the fuel companies but the government.  They are the ones who have devalued the pound by 25% and are also the ones who put the 66% of tax on the price.  The oil price has remained quite stable on average but the UK public has seem prices go up by 20%. The end result is that the oil companies make more money selling chocolate bars to the drivers than they do in fuel!

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Written by f0ul

April 1, 2010 at 10:33 am

Posted in economics, politics

Tagged with , , , , ,

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