So how high will petrol go?

[oweneades]

To go against the general concensus in one of the emails I have received this week at work from the economists at RBS (who specialises in commodities) they seem to think that in the short term oil will hit new highs (possibly wround the $125 a barrel mark) but in the long term the price will fall again (stated at around the $70 a barrel mark)due to decreased demand from America.

Unfortunately there was no further information and I don't have the email to hand but its interesting given that this has come from someone who actually does know the market (ie knowing the market is their job).

I am actually unsure on this myself and unfortunately its one of those things that until we get there we can only make guesses.

 

[[TW]Fox]

Thats what I've heard and from an economic point of view at least its sound reasoning - it's estimated that the current price would be $60-$70 were people not hedging with commodities.

 

[Overlag]

i find it funny that at the beginning of the week we was told not to panic buy fuel due to this scottish refinnery closing. And now, just 2 days into this week, petrol prices have risen 2p already.... I paniced brought fuel... asked my manager not to put the price up untill 9 as i finish at 8 and will fill up then lol. (come to think of it so did a lot of managers @ our store)

 

[Hxc]

105.9 is cheapest here currently, I can't see it rising that much more.

 

[willd58]

Currently, raw crude accounts for approximately 30p of the price of petrol in this country. The rest of this is the process of producing/refining, delivering to stores, the retailers tiny slice and the big one, duty and then VAT. As a result, continuing oil prices, although they will be an upwards price pressure, will not affect us in the same way they have the US. Just over a year ago, the oil price was $70 a barrel. It is now nearly double this but the fuel price is only 10-15p more than it was just over a year ago. Our disproportionately high levels of taxation go some way towards insulting us from the effects of high oil price.

In order to see widespread £1.30-£1.50 a litre prices (We will ignore peak prices becuase they are not reflective) I would estimate a barrel of oil would need to be between $200 and $300 first. Personally I think such a price for a barrel of oil would be sufficient to trigger a demand side shock. It's simply economics - once price rises too high then demand will collapse until price falls back intoline with what the market can afford. Now, the problem with oil is that it's extremely price inelastic but there is of course no such thing as a 100% inelastic product - it's still affected by price just nowhere near most other products.

The problem we've got at the moment is that oil price is rather detatched from the fundamentals of supply and demand - the reason for the high prices at the moment are because as the US economy continues to fall into a recession, the value of dollar against foreign currency continues to fall also. This makes the dollar a poor choice for investments and in times like this, investers look to commodities as a hedge against the falling dollar.

Unfortunately, oil is a tempting commodity - gold has seen similar price rises.

Whilst taking into account some of that is personal opinion and speculation, theres a lot of cold hard economic sense in this post, well done.

 

[Clarkey]

105.9 is cheapest here currently, I can't see it rising that much more.

I bet you it will

 

[deko]

wee local petrol station around here is selling at 104.9, as it has been for about the past 2 months without any change. BP is a joke at well above 10, and the supermarkets are about 06/07.

BTW, i know its off topic and that, but why are petrol prices always in .9, why not just make it a whole number and make it well easier?

 

[OllyM]

BTW, i know its off topic and that, but why are petrol prices always in .9, why not just make it a whole number and make it well easier?

Somebody asked Fox the Fox on Chris Evans Drivetime on Radio 2 that today

Tuesday 22 Question
How come in petrol stations the petrol is always priced at .9 of a pence...? Is this the only item retailed with a decimal place of a penny? Why do they do it and do they end up making money from the punters because they round it up every time?

Tuesday 22 Answer
This is a really difficult question that no-one I spoke to in the industry could answer in full. BP told me that the price of a litre of petrol doesn't always end with .9 of a pence - you also see it priced at .4 of a pence, or at a round number such as one pound. As for what happens when you buy several litres... He couldn't tell me whether it was always rounded up to a full penny or not. I suppose the only way to find out would be to go to a petrol station and buy say one litre, priced at 108.9p, and see whether they round it up to 109, then buy one litre at 108.4p and see whether they round it down to 108. The reason they do it is because it's an extremely competitive market - so a fraction of a penny can make a real difference, especially when you consider that people buy many litres at a time so it all adds up.

 

[Jonny ///M]

How come people like to ask questions starting with how come!!

This is putting me off getting a car. I ride most places at the moment and take the train @ £3 or £3.50 for a return. £9 to edinburgh or £5 on a bus. It's doesn't stop at cars thats the thing. We will see prices on food and public transport going up again due to this. The bus in edinburgh used to be £1 but is now £1.20 at the start of the new tax year! How can they justify a 20% rise :S

 

[BlizzardX]

Where I fill up, its around £1.15 - £1.20 for a litre of petrol. I'm currently on close to 100 litres a week as I have to drive to Harlow as that is where my current contract sits. Sure, I can put the fuel through as an expense and claim a certain percentage back BUT with the costs having risen close to 30p in just over a year (at the beginning of 2007 I was paying 88p a litre at the same places), I've had to get a new contract working in london because its just not viable to earn money driving out of the city anymore.

 

[Third Opinion]

Unfortunately another day brings another record.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/23/cnoil123.xml

I predicted £1.10 a litre by April 2008 last August. I am pretty sure we will reach the $200 a barrel by the end of the year given the increases we have already seen since January.

I feel for sure we will be £1.40 a litre by the end of the year and £1.60+ in a years time.

Unfortunately there is too many people on this planet for the resources we have. Look at the increases in food etc, all supply shortages.

 

[Freefaller]

The thing is they've now achieved such high prices that even if the price of oil dropped by 50% they wouldn't reflect it in the price, when you're making a killing you don't cut back unless you have competition for it.

It's a bugger as I really wanted to get myself a big block v8 american truck/SUV/car

 

[[TW]Fox]

Unfortunately there is too many people on this planet for the resources we have.

Although arguably true this is not the reason for current pricing. Even the article you linked to states that.

 

[PhillyDee]

Unfortunately there is too many people on this planet for the resources we have.

Half the worlds population and solve fuel problems. Burn the other half as fuel for the remaining half.

 

[Simon]

The thing is they've now achieved such high prices that even if the price of oil dropped by 50% they wouldn't reflect it in the price, when you're making a killing you don't cut back unless you have competition for it.

It's a bugger as I really wanted to get myself a big block v8 american truck/SUV/car

Im confused by this. Petrol costs more because oil prices are higher, if the price of oil drops the petrol prices will also drop. The problem is that small rises are massively exagerated by taxation. Why they can't tax at a fixed rate per litre is beyond me. At the moment the government will be racking the cash in.

Please dont think for 1 second that any of the billions oil companies make come from petrol station forcourts.

 

[Freefaller]

Half the worlds population and solve fuel problems. Burn the other half as fuel for the remaining half.

1/2 the population of the world don't use/own a car.

Though it could be argued that a lot of people own more than 1 car - though only 1 can be driven at a time

 

[Freefaller]

Im confused by this. Petrol costs more because oil prices are higher, if the price of oil drops the petrol prices will also drop. The problem is that small rises are massively exagerated by taxation. Why they can't tax at a fixed rate per litre is beyond me. At the moment the government will be racking the cash in.

Please dont think for 1 second that any of the billions oil companies make come from petrol station forcourts.

I didn't mean it from the forecourt POV, I meant from the government point of view. Once you've found a good way of making money they'll stick to it, or drop it by some small margin. To use my example of 50%, we may get a 10% drop, which we will all say "woohoo" because it'll appear a lot cheaper - yet we'd still be over paying for petrol. We've accepted the status quo, yes people are moaning, but people are paying up nonetheless because we have no choice!

What I meant is that they've got themselves a nice earner, and even if we find a revolutionary new way of extracting lots of oil meaning we're good for thousands of years (bear with my imagination just for this example) and the cost of oil drops by 50% we won't get 50% cuts in cost, purely because of the profit that can be made by reducing it even by 25% to us - we still get stung for it don't we? Or am I being too cynical? I probably am...

 

[Simon]

I think you are being a bit cynical - Prices dropped to 82p a litre after the previous £1/litre era.

You have to remember that petrol/refining and oil is not a monopolised industry. Billions and billions of $s flows around companies in terms of trading the black stuff.

 

[Third Opinion]

Although arguably true this is not the reason for current pricing. Even the article you linked to states that.

But that is my belief. Nobody is ever going to admit the planet is overcrowded.

 

[Freefaller]

I think you are being a bit cynical - Prices dropped to 82p a litre after the previous £1/litre era.

You have to remember that petrol/refining and oil is not a monopolised industry. Billions and billions of $s flows around companies in terms of trading the black stuff.

I find cynisim is a good self defense mechanism!

I will step back and accept that maybe it's not that bad and accept your more in depth knowledge of this side of things.

Yes it's easy to forget the market force behind oil, I suppose it's no different to any other trading, it has to be as competitive as possible. I'm just convinced that with all these "green" attitudes seeping into government minds they'll keep the pain to a maximum for us petrolheads!