Thursday 23rd October 2008
by Bob Bardsley
Know Your Money Editor
Fuel has been one of the two main areas cited as driving inflation higher over the past year, along with food costs, but over the past week prices have begun to drop, with the supermarkets leading the way. Now prime minister Gordon Brown is urging other retailers to follow suit and asserts that the UK government is taking action on both domestic and international levels to ensure that a supply of affordable fuel remains available to motorists across the country.
So what factors are actually affecting the price you pay at the pump? In past years much of the focus has been on the amount of tax UK drivers pay on their fuel, but over the recent months attention may have shifted to the retailers, while overseas the oil-producing countries could be becoming more well known among consumers. With producers, retailers and the government all looking to take a share of the profits on fuel, who has the last say on the price per litre?
Gordon Brown
Last week, Reuters reported the prime minister as having warned retailers across the UK that they are being watched by authorities - and urged them to cut their prices in line with reductions in the cost of oil on the wholesale market. He also noted that significant variations exist in the prices paid in different parts of the UK, with some regions standing at less than £1 per litre and others still charging as much as £1.20. "That must change," Reuters reports him as saying.
His comments came after two of the major supermarket chains had lowered their prices to below £1 - although, at the time, others had yet to do so. But Mr Brown asserted that consumers are aware of the speed with which any increases in wholesale prices are passed on to them and are likely to demand that they receive similar treatment in enjoying the benefits of reduced wholesale costs. Competition between domestic retailers of fuel was suggested by the prime minister as one factor which could drive costs down. "I want to see the competition between supermarkets and oil companies reflected in lower prices at the pumps," he explained.
The Supermarkets
The Press Association notes that all four of the major supermarkets have made reductions to their petrol prices, which may have pleased Mr Brown. Tesco was the last to do so, according to the newswire, with a reduction of 3p or more on all of its different fuels taking the price of unleaded to 99.9p on many of its forecourts. However, with prices set on a regional basis, there may still be some places where the cost remains a little higher, as Sainsbury's explained when announcing its own cuts. Sainsbury's customers should still be seeing a pump price of 99.9p at many of the supermarket's sites, though.
While it might seem likely that the price cuts would end once all the supermarkets had reached the same level, the Press Association points out that is not the case this time around. Rather, a price war may be emerging as a further round of reductions took place over recent days. Morrisons knocked 2p off its petrol prices, taking unleaded down to 97.9p. Asda was quick to follow, with trading director Darren Blackhurst telling the newswire: "We expect oil prices to fluctuate in the coming weeks and will continue to pass on cost savings to customers."
OPEC
The Organisation of the Petroleum Exporting Companies (OPEC) represents the interests of the nations with many of the world's oil reserves and is responsible for deciding how much oil to process and distribute overseas. However, the Press Association has also recently reported that OPEC may be planning to reduce the amount of oil available in an effort to prevent wholesale prices falling any further. The prime minister has expressed outcry at such attempts, saying: "I think it is absolutely scandalous," and adding that the UK government will do its best to make sure UK consumers are not impacted upon by any such activities.
He claimed that the increasing price of both food and fuel over recent months has been due to the balance of supply and demand - with purchasers believing that both commodities would be available in smaller amounts than consumer appetite would require. During such times, Mr Brown suggested that price increases can seem inevitable, with the expectation of costs continuing to rise also being high when demand outstrips supply. As demand dwindles, however, it could be that wholesale sources and retailers begin to awake to the reality that consumers will not meet endless increases in costs.
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