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Third petrol price spike ends – more to come?
A 3.5p-a-litre fall in the average pump price of petrol since mid April has signalled the end of the third big price swing in 12 months. But, with Tuesday’s International Energy Agency warning that traders and speculators are taking control of the European fuel market, it is unlikely to be the last, the new AA Fuel Price Report notes.
The average price of petrol on UK forecourts has fallen from 136.89p a litre in mid April to 133.35p this month. It had hit a year high of just over 140p on 4 March, having started the year at around 132p.
Diesel, on average, now costs 138.17p a litre, down from 141.76p a month ago. It also reached a year high on 4 March of almost 146.5p a litre, having started the year at around 140p.
The latest swing in petrol prices is the third 8p to10p-a-litre ‘price shock’ in 12 months, adding up to £5 to the cost of filling a typical fuel tank and raising a two-car family’s monthly petrol cost by as much as £21.23.
The first swing in March last year raised the UK average price to a record of 142.48p in mid April and, after falling back to 132p in July, the petrol price spiked again in October at 140.23p a litre.
The extent to which movements in petrol pump prices reflected movements in wholesale cost is illustrated by the following chart:
The drop in pump prices follows a series of supermarket price reductions, led by competitive independent and other non-supermarket retailers, which have now reduced the cost of petrol to as low as 128p/129p on the east side of London.
However, wholesale price movements indicate the fragility of the price falls as petrol costs have rebounded, fallen away again and then bounced back over the past three weeks. For the moment, the AA believes petrol pump prices are where they should be compared to the start of the year. But, with petrol in mid May 2010 averaging 121.5p a litre and diesel 123p, the drain on family and business finances still remains critical.
On Tuesday, the International Energy Agency reported:
“Increased European reliance on trading houses and third-party suppliers may also leave a growing share of European supply in the hands of market participants with a different set of incentives than those of refiners. Whereas refiners have a clear interest in maximising production and plant utilisation, traders have a different mix of fixed assets and their strategy and market behaviour thus tend to respond to other signals, such as arbitrage opportunities or market volatility.”
The AA therefore welcomes investigations on both sides of the Atlantic into pricing activities in the oil and road fuel wholesale markets, hoping that they will expose the level of contradiction between market speculation and the fundamentals of supply and demand.
if petrol and diesel wholesale price movements were transparent, families and businesses would have 10 to 14 days’ notice of the next price shock
Paul Watters, head of AA Public Affairs
These investigations are a significant development, perhaps a turning point, in getting to the bottom of what drives the price of fuel on UK forecourts. It could be the beginning of the greater transparency the AA has been demanding for years.
“Three times in the past 12 months, drivers have been hammered by £4-£5 hikes in the cost of a tank of petrol. It is clear that, if petrol and diesel wholesale price movements were transparent, families and businesses would have 10 to 14 days’ notice of the next price shock – and hopefully the reason for it,” says Paul Watters, the head of AA Public Affairs.
“The IEA report suggests that fuel prices will be increasingly subjected to speculation on the part of those who look for inflated short-term profit rather than those players looking to strike a balance between fair profit and supply and demand – without destroying their consumer market, refining capacity and the UK economy.
“We have seen petrol consumption in the UK fall to record lows this year, 69% of AA members are cutting back on car use, other spending or both, and 86% of US drivers say they are using their cars less. The warning signs couldn’t be any clearer.”
Averaging 132.8p a litre, Yorkshire and Humberside has resumed its position as the cheapest region in the UK for petrol. Northern Ireland, most expensive for petrol at 135.1p, is also a full 2p a litre more expensive for diesel than the cheapest area, Yorkshire and Humberside at 137.3p