When it comes to the price of fuel at a gas station, there’s a question people always ask. “Why do prices at the pumps go up so quickly when oil prices rise, and then fall so slowly when oil prices fall?”
was told that this mystery was wrapped in a mystery that experts quite wittily called the ‘missile and feather’ effect.
Prices rose like rockets and drifted down like feathers as international oil prices fell.
When the Government announced excise tax cuts of 20c on petrol and 15c on diesel on Wednesday, there was a legitimate expectation that ticket holders would see the reduction fairly quickly.
Not so said the industry. Industry body Fuels for Ireland explains that excise tax is payable at the time the fuel leaves the station and it is paid a lot of time in advance. So, therefore, the fuel currently stored in the tanks of the filling stations already has full excise taxes already paid on it.
Based on this logic, motorists will begin to see the benefits of modest excise tax cuts in the coming days.
All of that seems quite reasonable if deliveries are made on that basis. But it does not explain the rocketing effect of rising oil prices in international markets.
Certainly within the timeframe of shipping that fuel to filling stations, there should also be a delay in price increases as international oil prices soar.
Politicians saw an opportunity to get involved by suggesting that the consumer watchdog should investigate fuel price guillotine. It makes a great sound but it doesn’t tell us much about how the Irish money market works.
There is nothing illegal about price gouging and so it does not need to be investigated. In theory, a petrol station owner could raise prices despite lower excise taxes. The assumption is that if they are too greedy, they will not sell much fuel.
The only thing that can be investigated is where competitors are working together on price in a concerted effort to keep prices high and undermine competition.
Fuel prices at gas stations always vary from station to station.
That doesn’t mean there isn’t a price gouging, it just means there may be no illegal syndicates at work.
The good news came as oil prices fell on Thursday.
US sanctions on Russian oil imports, combined with UK and EU commitments to reduce Russian imports, are sending oil prices soaring.
However, there have been some reports coming from the industry that there is still spare capacity around the world and that the US itself may well be ready to fill some of those gaps.
First, it won’t happen immediately. Second, it also won’t last forever.
Based on that assessment, it is speculated that oil prices will remain high (above $100/bbl) but may not continue with the rocket effect.
Similarly, some analysts have put a price ceiling of more than $200 per barrel on oil as they see it as a long-term geopolitical crisis that won’t end anytime soon.
Higher fuel prices will eat into the cost of doing business and create a vicious cycle of price increases.
I know of a garbage collection business that is blaming higher fuel costs for raising prices by 16pc for the regular domestic bin and 25pc for the blue recycling bin.
It announced the increase on the same day the Government made a request to cut the excise tax.
We all expect the impact of fuel price hikes to hit our electricity, diesel and petrol bills and even food because of higher delivery and commodity prices. But inflation of this kind can indeed hold and it is inevitable that people will look for wage increases to cope with the loss of purchasing power.
There are also long-term problems going on here. Much of mainland Europe needs to retreat from its dependence on Russian oil and gas. The EU’s goal of reducing Russia’s fossil fuel imports by two-thirds within a year seems unattainable without a major economic shock.
However, countries like Germany will now speed up their search for alternatives, and that could bode well for the renewable energy potential of places like Ireland.
Likewise, it will create a whole new balance in the global fossil fuel trade, which will keep international prices very high for some time to come.
The inflation rocket hasn’t run out of fuel yet. We all have to pluck before the hairs can start to fall out.
Tourism faces new defeat from war
Higher fuel prices mean higher airfares. Russia’s invasion of Ukraine could not have come at a worse time for the aviation industry. Trying to recover from Covid, airlines like Ryanair hope to lure people back to flying with cheaper fares.
Ryanair has had its own chance in Ukraine, now very clearly in custody. But transatlantic carriers such as IAG, which owns BA, and Aer Lingus, have also seen their share prices fall.
Shares of Ryanair are down 35% in a month. IAG drops 24pc. The big challenge in Ireland will be how Americans behave. The tourism industry has been appreciated for its reasonable recovery from US travelers after Covid.
This is the time of year that many of them book trips to Europe. Tourism Ireland has been very active in the US since last October.
The tourism sector here, where North Americans spent 1.6 billion euros in Ireland in 2019, will have to rely on American customers’ knowledge of the map of Europe. Hopefully they can see how far Ireland is from Ukraine.
But even if they aren’t swayed by the general uncertainty of headlines about Europe’s biggest conflict since World War Two, airfares could make them rethink.
Times couldn’t be worse for the sector.
https://www.independent.ie/opinion/comment/the-rocket-and-the-feather-effect-of-big-fuel-price-rises-41436681.html The ‘rocket and feather’ effect of massive fuel price increases