x Abu Dhabi, UAETuesday 23 January 2018

Cheaper crude slow to feed through to British motorists

European motorists are only slowly seeing the benefits of the collapse in crude prices since July.

LONDON // European motorists are only slowly seeing the benefits of the collapse in crude prices since July, but oil companies deny they have been taking advantage of the drop to beef up margins. UK petrol prices averaged £1.07 (Dh6.75) per litre on Oct 12 and diesel was 118.45 pence, according to data from Experian Catalist.

This represents a fall of 10 and 11 per cent, respectively, from a peak in pump prices on July 17. Pump prices in many other European countries including Italy, Greece and Germany have fallen less than 10 per cent since July, according to data from the motorists' group, the Automobile Association (AA). Meanwhile crude has fallen by about 44 per cent from its July 11 peak above US$147 per barrel. "Prices have come down, but we'd like to see them come down faster and by more," said Adrian Tink, a strategist at the British motorists' group, the Royal Automobile Club (RAC). "Prices seem to go up far faster than they come down".

The new British minister for energy, Mike O'Brien, told consumers on Monday to exert more pressure on fuel retailers. "What we need to do is make sure that the consumer is out there and supporting those who are reducing prices and punishing those who are failing to reduce prices," Mr O'Brien said at a conference in Oslo. Motorists' groups accept that with about 70 per cent of European fuel prices being made up of taxes, the drop at petrol stations will be less extreme than in benchmark crude prices.

However, crude prices were at almost the same level 12 months ago as they are today, but petrol prices in the UK are now 10 per cent higher than then, and diesel is 19 per cent higher. Fuel retailers said the relatively muted drop since July reflected a lag of between six and eight weeks between crude changes and pump prices. "We bring our prices into line as soon as we can, but drops in oil prices take a while to work through the system," said Mark Salt, a spokesman for BP.

Higher costs, UK inflation hitting a 16-year high in September of 5.2 per cent, and weaker currencies are the reasons why pump prices are above levels of a year ago, a spokesman for Britain's Petrol Retailers Association said. The pound and euro are both down sharply against the dollar, the currency in which crude is traded, since July and compared to October last year. Nonetheless, forecourt operators are benefiting from lower oil prices, said Stephen Brooks, an analyst at the consultants Wood Mackenzie. "Margins aren't looking too bad. As oil prices drop, margins tend to be a little higher than one would normally expect."

Analysts at investment banks said they expected oil majors such as BP and Royal Dutch Shell to report a recovery in fuel retail margins when they unveiled their third quarter results later this month. However, fuel retail margins tend to be stable, so any fattening will be temporary, Mr Brooks said. Stiff competition should mean further falls in pump prices, said Luke Bosted, a spokesman for the AA, especially thanks to competition from supermarkets, which Mr Brooks said controlled 40 per cent of the UK market and big chunks of the German and French markets.

"At some sites fuel may be sold as a loss leader, which is good news for the driver," Mr Bosted said. * Reuters