a day ago
Fueling frustration: Why Irish petrol prices stay high, even when oil doesn't
Donald Trump, as he so often does, opted for all capital letters for this post on Truth Social earlier this week.
'EVERYONE, KEEP OIL PRICES DOWN,' he said. 'I'M WATCHING! YOU'RE PLAYING RIGHT INTO THE HANDS OF THE ENEMY. DON'T DO IT!'
Like he told major retailer Walmart to 'eat the tariffs' he has imposed, the US president was telling oil markets to eat the instability he had directly contributed to in the Middle East with a direct attack on one of the biggest producers of oil in the world.
As much as he appears to desire the power to dictate such terms, how much we all pay at the petrol pumps is not at the whim of Donald Trump.
So far, however, prices appear to be singing to his tune somewhat, if not for the reasons he may think so, that is, himself.
Here in Ireland, it was only three years ago that we saw geopolitical forces brought to bear as Russia's illegal invasion of Ukraine saw prices for everything skyrocket, including for petrol and diesel.
While the impacts on us pale into comparison when compared to the Ukrainian people, Russia's actions did precipitate a cost-of-living crisis charities say is still biting to this day.
But, despite bombs falling in Tehran, Tel Aviv and Doha in recent weeks, the oil markets so far — and this must be stressed, so far — have not reacted like they did back in 2022.
Back then, there was a 'perfect storm' of Russia being such a big supplier, coupled with a relative shortage of oil supply coming out of the pandemic, according to transport commentator Conor Faughnan.
This time, due to tariff threats and concerns about the global economy, as well as additional supply in the market at the moment, oil prices had been expected to trend down in the second half of this year prior to the recent Israel-Iran hostilities.
'It's been notable to observe when we had the Russian invasion in 2022, there was a very strong and prolonged reaction in world oil prices,' Mr Faughnan said. 'They went up and stayed high. That's different from the current crisis.
Conor Faughnan: 'About 55%-60% of the money you pay at the pump goes directly to the Government in taxes. The oil price component is surprisingly small.'
'There hasn't as yet been the sort of extreme reaction we might have expected to see. Over the years, there's been a very serious set of circumstances, there's been multiple geopolitical shocks to the oil price. Often, they'll cause turbulence on a two-to-three day basis.
When Russia invaded, we had a sustained effect. This time around, it's different.
Mr Faughnan said it was more a case of the markets having 'bated breath', or there being a 'pregnant pause' while they waited to see how events would play out in the Middle East conflict.
On Tuesday, oil prices hit their lowest in two weeks after Trump claimed there had been a 'total ceasefire' agreed between Israel and Iran. But, as we know, the bombing did not fully stop there.
Later in the week, JP Morgan analysts said global energy prices were 'moderating' following the ceasefire.
However, the lobby group for fuel retailers said that prices were already coming from a high base.
Fuels for Ireland chief executive Kevin McPartland said even prior to US strikes on Iran, wholesale prices had already surged by nine cent per litre for petrol, eight cent for diesel and seven cent for kerosene.
And this is before tax and retailer margin is applied.
'We fully understand the pressure that rising fuel costs put on households and businesses, particularly as we move through a cost-of-living crisis,' Mr McPartland said.
These are global effects being felt locally. Fuel retailers in Ireland are not setting prices arbitrarily. They are responding to international costs that are outside their control.
One factor that could send the price ballooning even higher is Iran's actions at the strategically important Strait of Hormuz.
About a fifth of the world's oil passes through this area, which has Iran to the north and Oman and the United Arab Emirates to the south. Iran has in the past threatened to close the strait, which would restrict trade and affect global oil prices, but has never followed through on the threat.
Mr Faughnan said a shock to the world oil price is 'possible if the situation worsens, or the Strait of Hormuz is involved'.
'It hasn't happened yet,' he said. 'If it does hit, we'll reassess. What's remarkable to note is that post-Israeli attacks on Iran last week, the global oil market was, relaxed is the wrong word, but it wasn't the extreme reaction we might have expected.'
Petrol and diesel prices in Ireland
Then again, Irish consumers will not need to experience another geopolitical shock to see the cost of filling the car be unwelcomingly high. They have been paying high prices at the pumps for some time.
While the cost of a litre of petrol has fallen from its peak of more than €2 in the summer of 2022, it still remains stubbornly high at arobout €1.79, according to figures from AA Ireland.
Its figures suggest prices have fluctuated wildly, ranging between €1.50 and close to €1.90 a litre for both diesel and petrol in recent years.
Even going further back, and the price at the pumps has been high. Heading into 2020, prices going back five years had been in the range of between €1.20 and €1.50 a litre.
If we were to factor in general inflation since then, using data from the Central Statistics Office, it has reached over 25% in that time. So, the €1.31 you spent for a litre of petrol in January 2015 translates to about €1.64 now. While fuel inflation is higher than this, they're in the same ball park.
In other words, the prices were high enough then and even higher now.
For its part, an AA spokesperson said: 'Any volatility in international markets inevitably can affect wholesale costs and, ultimately, prices at the pump.
If tensions escalate or shipping routes are disrupted, it could lead to price increases for Irish consumers. We've already seen some fluctuations this year, and continued instability could keep upward pressure on prices in the months ahead.
Mr Faughnan said an increase in the cost of oil would also lead to consumers paying more Vat on the cost of filling the car, as it is calculated as a percentage of the cost.
Government taxes
'About 55%-60% of the money you pay at the pump goes directly to the Government in taxes,' he said. 'The oil price component is surprisingly small. You've the oil price, refinery cost, shipping cost, wholesale margin, retail margin. On top of that then the price is doubled.
'A big move in the oil price translates to a more modest move at the pump price.'
Mr McPartland, whose organisation represents fuel retailers, said when fuel prices go up the tax on them goes up too, which he said warranted a 'comprehensive review of how fuel for heating and transport is taxed'.
'We are calling on the minister for finance to establish a group of experts to undertake this review as a matter of urgency,' he said.
We've been here before. To help mitigate cost-of-living rises, the Government temporarily reduced excise rates on fuel at a 'significant cost to the exchequer', according to officials from the Department of Finance.
It said last year this measure had effectively been a fossil fuel subsidy and was a 'climate negative measure'. It appears any measures to ease the taxes paid at the petrol pumps remain unlikely.
On carbon taxes — which make up about 13c-14c of the €1.79 litre of petrol — finance minister Paschal Donohoe told the Dáil that if 'we want to invest more in a greener and lower carbon future, we need to have a way of paying for it'.
At the same time, in terms of an alternative, take-up of electric vehicles is accelerating but not yet at the kind of critical mass needed to significantly reduce our transport emissions.
Just last week, the Climate Change Advisory Council said new EV grants of €10,000 should be given to the lower-paid to encourage them to make the switch.
'The benefits and savings from existing policies and measures are not keeping pace with the causes of increased emissions, including increasing transport demand in terms of fuel sales and vehicle kilometres, and corrective action is needed in the sector,' it said.
CSO data tells us despite 16% of new car sales so far this year being EVs, with similar market shares for plug-in hybrids, a further 44% were for petrol and diesel cars.
For now, the reliance on the petrol and diesel car remains strong in Ireland. And while it does, so too will we be reliant on factors outside of our control.
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