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'The price of petrol will drop — but you're going to be disappointed'

Why are Irish motorists not yet feeling the benefit of declining global oil prices?

THE GLOBAL PANDEMIC is putting severe downward pressure on crude oil prices under but consumers are wondering if and when they’re going to feel the benefit.

For Conor Faughnan, director of consumer affairs for AA Ireland, “There is a price reduction for motorists in the post. It’s coming. But you’re going to be disappointed when it arrives”.

Demand for oil has collapsed because of what the International Monetary Fund is calling ‘The Great Lockdown’ and its effects on travel and transportation.

This, coupled with a global shortage of storage space for oil, has caused a massive sell-off on commodities markets this week.

Earlier this week, US oil prices slumped to below $0 a barrel for the first time while Brent Crude, the benchmark used to price two-thirds of global oil, hit a two-decade low.

In Ireland, those of us in the minority of people still driving their cars every day might be wondering why this crisis isn’t being reflected on garage forecourts.

In recent weeks, the Consumer Association of Ireland CAI) has even taken Ireland’s largest fuel retailers to task on this subject.

As reported by the Irish Independent last month, CAI chairman Michael Kilcoyne accused the industry of “price gouging” by not passing on savings to the consumer.

The somewhat good news for drivers is that according to AA Ireland’s most recent price survey, forecourt fuel prices have slid by around 20c a litre since January.

In March alone, the average price of a litre of unleaded fell by 15c from €1.42 in February to €1.27 while the price of diesel fell by 16c to €1.17 in the same period.

Why not a more notable drop in prices at the pump? Because Faughnan says, the price of crude oil accounts for only one-third of the price of a litre of petrol.

He says that when the last crash occurred, “oil was trading at around$148 a barrel”.

“Then when the crash occurred, it dropped down to about $30 per barrel.

“At that time in Ireland, the Irish government added emergency taxes to fuel in the 2008 emergency budget and subsequently, in 2009 and 2010, added more tax to fuel. Those emergency austerity era taxes are still there.”

According to the AA survey, the price a litre of petrol last month was 40c before taxes were added, while a litre of diesel cost 43c.

Faughnan believes that there will be a further decline in prices for motorists but it won’t quite reflect the dramatic headlines of recent days.

Tight margins

The major Irish-owned fuel retail groups have been very profitable operations in recent years. Last year, pre-tax profits at Applegreen climbed by 137% to nearly €71 million while Maxol booked pre-tax profits of over €15 million in 2018.

But Faughnan says, “If you go into a typical garage, the chances are it’s a franchise operation. It’s a small local business.

You go in and you buy €30 worth of diesel, a cup of coffee and the newspaper. It is literally true that the guy is making more money on the coffee, so tight are the margins for retailers.

His advice for consumers — who might be experiencing tight margins themselves thanks to the pandemic — is, “Buy fuel in units of litres rather than in units of currency.”

“So, if your habit is to buy 20 quid’s worth, don’t do that. Buy 15 litres. It will become immediately obvious if garage number one is charging you €21 and garage number two was charging your €19 (for the same quantity).

“The informed consumer has to do a bit more to look for good value. And the more you do that, the better value we’ll get in the market.”

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