Why Do Fuel Prices Soar?

We all know that oil is a finite fossil fuel don’t we?  That’s why it’s getting so much more expensive isn’t it?  It’s getting harder and more costly to extract and government taxes make up a huge percentage of the price we pay at the pump too.   Well, that’s certainly part of the long term picture and petrol as a revenue generator for the Chancellor of the Exchequer is a favourite option, even though in today’s budget Chancellor Darling has said that fuel price hikes will be “phased in”.

But it’s not the whole story.  There are other, less obvious, reasons we pay through the nose at the forecourt!

Last year, we had the spectacle of oil tankers sitting off the British coast near Cornwall and refusing to unload until prices rose even higher.  And this practice still goes on.  Tankers park off our shores for months, making millions for speculators and keeping your petrol costs soaring.  They refuse to unload their cargo until market speculation has driven up the price to a level they want.  This waiting game can be very lucrative, with the cargo sometimes rising in value by over £1 million a day.

Several tankers sitting in Lyme Bay last year increased the value of the oil they were carrying from £313 million to £378 million by doing nothing more than simply watching and waiting!  Oil pumped out of the ground by major producers such as BP, Shell and Exxon goes by pipeline to tankers which then circle the globe.  Even while it’s en-route at sea, this cargo of oil may be bought and sold by different traders many times (often in the same day) on the international commodity markets.  Some of these oil traders may be reputable big-name players within the industry, but others are simply speculators out for a fast buck at your expense.

Now, the price you pay at a forecourt is largely fixed as soon as that oil reaches an onshore refinery, but until the oil does get to that refinery, speculators are free to drive up the price. If it’s not high enough, the tankers simply cruise around or park in a safe haven until the price does increase so they can sell on in the UK at a huge profit.  The extent of this oil speculation is beginning to alarm even the OPEC producer countries who’ve suggested that they will increase supply (and thus reduce the price) if speculators do not stop this “wait and see” practice.  So next time you notice yet another price rise at the forecourt, don’t just blame the government.  Blame the tankers at anchor too!