Irish motorists anticipating major fuel price drops at the pump due to plummeting oil prices are set to be disappointed, experts have warned.With oil dropping below $18 a barrel in New York yesterday, eager Irish diesel and petrol vehicle owners will have their eyes on the pumps in their local filling stations over the next two weeks.
This is usually when price fluctuations make themselves known following either a spike or fall in oil.
The International Energy Agency, the Organisation of Petroleum Exporting Countries (OPEC) and the US Energy Information Administration have all issued predictions about how low the price of oil can go, and the consensus is that the bottom hasn’’t quite fallen out of the barrel quite yet.
Considering the price of a barrel was more than $68 as recently as January, the common consensus was that we should be seeing the benefits of its collapse.
Not so, according to Barry Aldworth of AA Ireland and UCC economist Seamus Coffey. Grumbling at forecourt operators for not passing on savings was misguided, Mr Aldworth said.
"Broadly speaking, we have always seen crude oil prices and fuel prices in Ireland track each other pretty faithfully, allowing for the fact that it can take about two weeks for crude changes to be reflected at the pumps depending on when a given service station purchased it’’s existing supply.
"While I’’m sure there are a few unscrupulous traders out there who will seek to maximise their profits on fuel, there isn’’t any evidence on this behaviour on a larger scale, with the average retailer here having shown a consistent willingness to pass crude oil savings onto the consumer."
High taxes are the reason for high fuel prices, Mr Aldworth said.
"The idea that retailers in Ireland are slow to pass on savings on fuel is part barstool conspiracy and part perhaps a failure to realise that the link between crude oil and fuel prices is smaller than the consumer may realise.
"It’’s important to remember that crude oil only consists of about 20% of the pump price, so while you may have a massive swing in crude prices, the change at the pump may not be as noticeable."
National Oil Reserves Agency (NORA) taxes and excise duty are static, he said, and do not fluctuate with oil prices.
"When you factor in VAT, taxes on petrol total in the region of 85c currently and 74c on diesel - in both cases approximately two-thirds of the retail price of a litre of fuel."
Mr Coffey, a former chair of the Irish Fiscal Advisory Council, said the perception of oil and fuel prices being intrinsically linked is an erroneous one.
"Fuel duties and Vat are 77c a litre before you start. If the pre-tax price was zero, we would still pay 77c a litre to cover those per unit taxes. The pre-tax price is now down to 40c a litre. With 23% VAT on that for 9c, we get the total price - 77c + 40c + 9c. I think it is remarkable that we can buy a litre of petrol for 40c before tax.
"Because of the scale of the tax in the price, I don’’t see much point in looking for a correlation between the price of a litre of petrol and the price of a barrel of oil.
"Intuitively it sounds like they should be related but it would not be much different to trying to find a relationship between the price of barley and a pint of stout."