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Pump fiction: why petrol prices haven't fallen as much as crude oil

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Pump fiction: why petrol prices haven't fallen as much as crude oil


The disparity between the declines in crude oil prices and those at the petrol pump is under question in this edition of Utalk. Julie in the French city of Limoges asks: “With the collapse in the oil market, prices at the pumps have also fallen, but not to the same extent. Why. And will this trend be continued?”

The response is from Thomas Porcher, a Paris-based economist: “Don’t expect a symmetrical drop in prices between crude and petrol for two reasons. The first is that the price of oil is denominated in dollars and often bought in another currency.

“For example, in Europe it’s bought in euros so you have to take into account the exchange rate. The second thing is that in the price of fuel there is a big chunk of taxes, which are fixed taxes. In France it’s almost 50% of the price of fuels.

“So that means that if we take the case of France, a 50% decline in oil prices denominated in dollars, if one turns them into euros it makes a drop of 40% and if you look at pump prices pump including, it’s down only 17%.

“The second question is: is this going to last? There is a consensus among economists that oil prices will rise. However, there’s a debate about the level; to which they will go up? And also in what time frame?

“According to the International Energy Agency, the price should go up within two years, some are a little more optimistic. To my mind, I think the price could go up in the second half 2015.

“What you should know is that the bigger the oil price decline the greater the rebound effect (ie the rise in prices). Because today with extremely low oil prices, investment in non-conventional oil, shale oil, is no longer profitable.

“So there will be less investment and ultimately less supply and more pressure on prices. So the fuel price drop is probably only temporary. “

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