What's the story with oil price rises?The remnants of the celebratory champagne had barely gone flat when consumers received their first new-year dose of bad news. On January 3rd the price of a barrel of crude oil finally reached and briefly passed the milestone mark of $100 (€68) on the New York Mercantile Exchange.
Global oil prices have been climbing steadily for months - the price of Brent Crude has almost doubled since the beginning of 2007 and increased fourfold over the past four years, so the breach of $100 was as inevitable as it was depressing.
Dramatically higher oil prices are never good news - unless you happen to be sitting on vast reserves of the stuff - and bring in their wake massive inflationary pressure to bear on virtually all methods of production and transportation. When oil prices rise, manufacturers and retailers across the board are given a gilt-edged excuse to increase their own prices while neatly side-stepping accusations of profiteering from consumers already sinking under a tide of rising prices.
At first glance, it seemed as if the impact of $100 oil was being felt immediately in Ireland as, within hours of the news breaking, the big suppliers of both petrol and home heating oil announced increases in their wholesale product price.
The manufacturers' increase sent petrol prices higher than €1.20 a litre on many forecourts throughout the State and added about €1 to the cost of filling the average car's fuel tank. The cost of filling an average-sized domestic heating oil tank, meanwhile, climbed by about €100.
In the immediate aftermath of the increases being announced, the Consumers' Association of Ireland (CAI) claimed that the price at the pumps was being "fuelled by greed".
CAI chief executive Dermot Jewell said the increases were unfair and unjust and claimed that there was hysteria behind the recent $100 oil barrel sale, pointing out that it was a "one-off transaction".
HE DESCRIBED THE current situation as "uncomfortable" and "difficult" and called for a reasonable approach from distributors and retailers when it comes to passing on price increases.
Jewell was certainly right on the money about the hysteria surrounding the $100 barrel of crude - reaching that mark was more about New York dealers showboating and prices fell back about $6 (€4) almost immediately. In fact, by the middle of last week, the price of oil had slipped back to just under $92 (€63) a barrel.
He may also have had a point about petrol producer greed keeping prices high in this country, but it was inaccurate to suggest that the current petrol price hikes were connected to crude oil's recent jump.
Industry sources believe that the CAI and other commentators have wrongly linked January's price increases on the global exchanges with the almost simultaneous rise on forecourts here.
One source told Pricewatchthat there was a danger that the mechanics of oil pricing could be misrepresented.
"Some people see coincidence and immediately shout conspiracy," he said. "There is no real connection between the breaching of $100 for a barrel of crude oil and any price increases we have seen here this month." When the price of oil rises on the world markets, it takes another five or so weeks before its impact is felt locally, he said, and the rises are entirely predictable.
Although demand for home heating oil across Europe will lessen significantly in the coming weeks - and this should alleviate at least some of the pressure - high oil prices are here to stay. And we all know it. Irish consumers who now believe their finances will weaken in 2008 outnumber those of a more optimistic disposition by three to one.
Financial analysts seem to share this gloomy outlook and most believe strong demand for petroleum products in 2008 (not to mention ongoing geo-political tensions, most notably in the Middle East), will ensure that prices remain at about $100 a barrel.
This depressing picture is not unique to Ireland. Last week, newspapers from New Zealand to New Hampshire were all running extensive and alarming stories about the consequences of rising oil prices. The reality is we're not faring that badly when it comes to the price at the petrol pumps, thanks to a relatively benign tax regime covering petrol - some 60 per cent of the price of a litre of petrol is made up of Government taxes, compared with 85 per cent in the UK. Of course, in the UK, motorists don't have to contend with the curse of VRT which adds significantly to the cost of motoring in Ireland.
ACCORDING TO THE AA's Conor Faughnan, petrol is one of the few things that is cheaper in Ireland when compared with most other EU countries. The AA's monthly petrol price survey which was published last week showed that the average price of a litre of petrol is currently €1.18.9, which is down slightly on last month's figure. "The strength of the euro against the dollar is doing a lot to offset the rise in the price of crude," he says.
According to repeated AA surveys the Republic is about the 17th most expensive out of the 25 EU countries for the price of fuel. France and the UK - the two most popular destinations for Irish drivers - are significantly more expensive than home while in Norway and the Netherlands petrol currently costs in excess of €1.50 per litre, a price we could soon be asked to pay here if oil continues its inexorable rise.
