Oil prices have been on a rollercoaster ride in the last 12 months. Brent crude has tumbled from $100 a barrel in late 2014 to just below $48 yesterday. And the price pressures are likely to continue well into next year, if the sages at Goldman Sachs are to be believed. In what the bank says is the most likely scenario, it expects prices to be $49.50 next year, down from earlier forecasts of $62.
The headlines, however, captured Goldman’s scenario for the sharpest fall: $20 per barrel for the US standard measure, West Texas Intermediate. That’s from a current price of $45.
Whatever the final outcome, the price drop reflects the level of oil surpluses in the world, on the back of both buoyant supply and weaker demand. Goldman states: “The oil market is even more oversupplied than we had expected.”
The Goldman projections follow similar predictions from the world’s leading energy forecast. In its monthly report, the International Energy Agency (IEA) said the price slump will force non-Opec producers to cut output, and high-cost production will have to be shelved.
Cheaper oil will have implications across the economy, from heavy industry to household heating bills. One constituency surprisingly irked by the fall in crude prices, however, is the Irish motorist.
Where, they rightly ask, is the impact of falling prices on the forecourts? In September last year the price of Brent Crude touched $99.05. Since then it has fallen by 50.6 per cent.
According to AA Ireland, the average price of a litre of petrol on the forecourt last September (63 per cent of private cars are petrol despite the recent popularity of diesel) was €1.55. It has since dropped by just 7 per cent to €1.44 in August. Even if you go by the average price on website Pumps.ie yesterday evening, at €1.36 that still represents a drop of just 12 per cent.
So why aren’t motorists reaping the financial rewards of cheaper oil? Part of the reason is the tax take. The Government takes more than 60 per cent of the price of a litre of petrol and diesel in tax, so the price reductions for the motorist on the back of lower crude oil prices is limited. Some of the tax charged on petrol and diesel is fixed, so that element of the price is impervious to the fluctuations of the oil market.
Retailers also argue that the final pump price is influenced not only by the cost of a barrel of crude but also by interest rates and the productivity of the refineries.
However, with interest rates at historic lows, there is clearly a strong case for a closer inspection of the pricing policies of the forecourt firms.
