Tag Archives | cost of diesel

Why does petrol and diesel cost so much? (2)

This e-mail came through this evening from a Value Ireland reader:

Just noticed on my way into work this morning that various petrol stations along the Cabinteely-Donnybrook route have increased the price of unleaded by 2c a litre. Considering the cost in $ terms has fallen by 22% since its highs, this should translate into about 1.05 a litre and not 1.28. Any idea why?

While I had posted about this earlier last week, it seems that this topic has come up again in the newspapers this morning following a call from the Consumer Association of Ireland Chief Executive, Dermott Jewell, that the Competition Authority get involved.

From todays Irish Independent, according to Mr. Jewell:

“The extraordinary situation continues,” he said. “The increases were put down to the price of a barrel, and then it was put forward that it was a currency issue. The reasons given are poor. We should be seeing reduced charges at the pumps. “We’ve put this off long enough. We need to have some form of investigation. The Competition Authority needs to urgently demand answers as to why this is the case. We need some intervention. This affects every part of our economy, not just the consumer. This is no more than continuing price taking.”

In short, this is pointless. As consumer’s we’ve shown that we’re willing to pay upwards on 140c per litre earlier this year – why would petrol retailers who are in the petrol selling business to make a profit reduce their prices that far below a level that they realise Irish consumers are grudgingly willing to pay.

It’s tough, I know, but it’s the hard reality of the petrol retail market in Ireland as it stands at the moment. There’s a lot more to illustrate the pointlessness of this suggestion – read on if you want to see more.


Pointless Exercise

Bringing in the Competition Authority isn’t going to reduce the price of petrol for consumers.- I don’t believe there’s anything for them to investigate. If Mr. Topaz gets up in the morning and looks across the road to see Mr. Esso charging 3c more, and he ups his price by 3c – we end up with petrol uniformly increasing by 3c – but without any price fixing taking place.

As an aside, it’s a similar situation when you look at the recent National Consumer Agency grocery price survey. From a basket of 72 individual items, Dunnes, Tesco and Superquinn have exactly the same price on 41 items – yet there were no price fixing calls following that survey – they just happen to have the same price, apparently.

So what is going to cause the price of petrol to fall?

In short, unless there’s a massive fall off in the demand for petrol when we start using the trains and buses, or the government brings in price controls, the answer is nothing will.

Given that the sale and pricing of petrol in Ireland is a non-regulated market and selling petrol is a business, the petrol retailers will sell petrol at a price that consumers are willing to pay.

Over the summer, when a barrel of oil was touching $145, and a litre of petrol was 10-15c more than it is now, the petrol retailers found that people were still buying as much petrol as always, despite the price rises. Retailers now know we’re willing to pay a whole lot more – so, why would they drop their prices if they can charge more, and get it. Anyone in business would recognise the madness of doing such a thing.

Basically, in economics terminology, the price of petrol is inelastic – when the quantity demanded does not change much with the price change. Petrol retailers have identified that for most car owners, petrol has almost become a non-discretionary purchase – because at least up to a price of 140c per litre, consumers will still keep buying the same amount each week.

So, bring in the Competition Authority?

Presumably, as requested by Mr. Jewell, the Competition Authority could investigate the retail petrol market in Ireland – and therefore determine if we have enough competition.

But they’ve done this investigation already. For an organisation that takes years to produce their research, their 2006 observations following the Topaz/Statoil merger approval fiasco could almost still be described as current. The summary of their investigations back then were that:

Consistent with other decisions, such a market concentration (of a combined Topaz/Statoil market presence) does not give rise to competition concerns at national level.

It could be worse

To further illustrate the pointlessness of any new research completed now is the fact that relatively speaking, Irish consumers are better off now than they theoretically could be.

Even allowing for exchange rate differences, the price of a barrel of oil has increased 32% in the past 2 years since the original Competition Authority statement – but the price of petrol in Ireland has increased by only 20%.


Why does petrol and diesel cost so much?

Or not coming down! You’ve heard many of the reasons in the press recently. The price of a barrel of oil is going up, but the dollar has weakened against the euro. Or has it strengthened against the pound. The normal winter price increases because of the demand in the colder United States should have worked its way out of the system – yet we’re not seeing this, or will soon be working it’s way back in. Others say it’s all down to oil speculators. Who knows!

The people who actually set the petrol prices in Ireland is an organisation called the Irish Petroleum Industry Association (IPIA) which, according to their website “is the representative body of those companies in Ireland engaged in the importation, distribution and marketing of petroleum products”. The site says that the members of the IPIA represents 95% of the oil industry in the Republic of Ireland.

So, obviously they’re “insiders” – if there’s money to be made on the price of petrol and diesel – then these are the people who make it.

To get the other side of the story, they have published a document called “What determines pump prices”. Click here to read that document to see what they have to say.


Gas prices in the US – some observations

While we in Ireland are relatively used to increasing petrol and diesel prices here, those in the US are finding things a lot harder with prices rising higher/faster than they’ve ever experienced. All this has caused some predictable, and some unforeseen issues over there:

  • According to an article in the New York Times, available here, because of the age of some gas pumps, some gas stations are having to charge by the half-gallon rather than by the gallon. This apparently is because these old pumps cannot provide numbers larger than $3.99. So, if the price goes above that, the half the price and charge by the half-gallon.
  • Linked from that article above is this great “heat map” of gas prices in the United States. You can click here to see the map on the New York City Gas Prices website. Driving holidays in California don’t look like they’ll be as good value as we might have thought in the past.
  • This article from Kansas City, available here, tells us that an expert says that 2% of gas pumps in the state of Missouri may be inaccurate. This was highlighted by a gas customer who was charged for 5 1/3 gallons of gas when they filled a 5 gallon can.

This last point is of interest to me, and my interest in conspiracy theories. Have you noticed that with the increase in petrol prices here in Ireland, it can sometimes take the same amount of time to buy €20 or €30 of petrol now than it did years ago – even though you’re getting less actual petrol in your tank. My conspiracy theory – they’re messing around with the flow rate of petrol pumps 🙂 Makes you feel like you’re still getting the same amount of petrol for your money, even though you’re not.

In Ireland, we have a service called the Legal Metrology Service who are responsible for checking that the petrol pumps in the country are delivering the correct volume according to the metre on the pump – i.e. to make sure that the Missouri example doesn’t happen. Petrol pumps are supposed to be checked regularly and each pump should be marked with the date upon which it was last checked for accuracy. All I can find on how often pumps should be checked is “from time to time” which wouldn’t instill much confidence.

The Legal Metrology Service are also responsible for checking taximeters, measures in pubs, and the accuracy of where weighing scales wherever used.


Cheap petrol!

In case anyone hadn’t seen this, and I’m not sure how new this news might be, but I was in Tesco in Clarehall this morning and noticed their advertising for their 5c off offer on petrol and diesel.

The deal is that if you spend more than €50 in Tesco (with some exceptions) you’ll get 5c per litre off your petrol or diesel purchases with Tesco also.

Applies to Tesco in Clarehall, Clearwater and Dundrum.


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