October 2016 Oil Market Report
During October we saw oil prices rise due to the news that OPEC was looking to cut oil production, which caused markets to swerve strongly upwards. At the beginning of September, the price of oil was $45 and by the end of that month, it had risen to $49. Jump forward to the middle of October and prices had hit the $52 mark. On its own, that would have been enough to push fuel prices up by about 3 pence per litre (ppl), but the current drop in the value of the £ GDP meant that this was only half the story.
The consumer fuel price is only partly affected by the price in $ per barrel. We have seen oil prices move up since the summer, but they have only gone up by 15%, whereas the £ / $ exchange rate has moved by approximately 25% during the same period. This currency shift has been at the expense of the £ GBP, which has pushed UK fuel prices up by a much greater factor than would ordinarily result from $ oil price movements alone. If we consider the $ price of diesel at the mid-point of October, we can see it was trading at around $480 per tonne (crude being traded in barrels and refined products being traded in tonnes!). At a pre-Brexit exchange rate of 1.50, this would have given a price of 102ppl (including duty and VAT). But use the actual 1.21 exchange rate that we are now experiencing post-Brexit, and we have a price of 110 pence per litre. That’s 8ppl uplift on the price of diesel due to the exchange rate, which when added to the 3ppl oil price movement, gives a total increase to the consumer of 11ppl.
The 2014 fall in oil price has been experienced and enjoyed, but now the underlying oil price is creeping back up and worse, the £ GBP is declining. Couple that with the fact that Britain imports the majority of its food, white goods , building materials, clothes and vehicles, you have the perfect ingredients for the 2017 inflationary spike that is now so worrying the Bank of England.
Looking at the situation in the short-term, it is very difficult to see how the current trends will reverse, especially given the current delay in formal negotiations for the UK to leave the European Union and the outcome of forthcoming OPEC meeting in November. But you can be confident that your local, family owned Rix Petroleum depots will be offering the great service and competitive prices, we are famous for. If you need to fill your tank before the bad weather arrives, you can get a free instant Heating Oil quote on our website.