Oil's drop below $75 a barrel won't stop costs rising for Irish consumers and businesses         

The cost of energy will continue to rise, given that the price of crude is up 385% since the onset of the pandemic

Oil tanker the Kmarin Rigour makes its way into Cork Harbour escorted by the tug DSG Titan after its voyage from Texas with a supply of crude for the refinery at Whitegate, Co Cork. Picture: David Creedon

The price of crude oil fell sharply to below $75 a barrel but the significant price increases already recorded in recent times are set to feed into higher costs for Irish motorists, households, and Irish businesses. 

The global benchmark Brent crude briefly touched new three-year highs on Tuesday before falling back sharply amid uncertainty whether the rebound in the global economy after the Covid-induced slump will continue at its recent pace.

The price of crude is up roughly 50% this year and over 385% since the onset of the Covid crisis in March last year. 

Oil price rises swiftly hike other costs

Crude price hikes very swiftly translate into higher retail fuel costs — in as little as two weeks in the case of Irish motorists and hauliers — and a matter of months in terms of household electricity bills. 

The AA said the average pump price of a litre of petrol at €1.46 a litre could rise further if the increases in Brent crude prices in recent weeks are locked in. 

"It is a worrying time for motorists," said Paddy Comyn, head of communications at the AA.

Aidan Flynn, general manager at Freight Transport Association Ireland, said fuel costs account for a third of the overheads of trucking firms which means any price increases are quickly added to business costs. 

Following the struggles of the Covid crisis, it was "one thing on top of the other" for the haulage industry, Mr Flynn said. 

Opec+ talks collapse

However, a debate has been sparked about whether crude oil prices will rise further following the collapse of talks earlier this week of the leading producer group. Goldman Sachs analysts said the collapse of the talks of the group known as Opec+ has introduced uncertainty, while maintaining the view that the price of Brent will rise to $80 a barrel this summer. 

Ministers of the Organisation of the Petroleum Exporting Countries (Opec) and its allies, a group known as Opec+, called off oil output talks and set no new date to resume them, after clashing last week when the United Arab Emirates rejected a proposed eight-month extension to output curbs.

Goldman maintained its view for a gradual increase in production in the second half this year, followed by similar increases in production in the first quarter of 2022. 

Reopening has stimulated consumption

Oil prices have rallied this year, as vaccination rates and economic reopening around the world have spurred fuel consumption. The extent to which the rally continues depends largely on the ability of Opec+ to reach an agreement to limit output. The breakdown has damaged the group’s image as a responsible steward of the market.

Analysts from Citigroup to UBS Group said that withholding extra supplies as demand recovers rapidly from the coronavirus pandemic will push prices higher.

A repeat of last year’s destructive price war, which sent oil crashing, is also no longer a “negligible” prospect, Goldman warned.