Will Petrol Prices “Rocket” by Christmas?
dated 07th Dec 2016
The last few weeks have been rather depressing for those who keep a close eye on petrol prices.
After four months of price increases, the tail-end of November saw daily averages begin to fall, helped primarily by a supermarket price war – but it seems as if those reductions may only be temporary. (It’s also worth pointing out that a comparison of entire month averages actually showed prices of both diesel and unleaded rising when comparing November to October, albeit by only around one penny per litre).
The national press has certainly been full of doom and gloom on this subject. Reports including this one have suggested that per-litre costs could go up by nearly ten pence per litre between now and the New Year.
So what’s behind all this? The key reason is a decision made last week by OPEC (The Organization of the Petroleum Exporting Countries) to dial back member country’s output of oil. This was intended to push the oil price up and the move did just that, with a barrel going up by 7% in the aftermath of the announcement.
Rocket and Feather?
The swift increase in the oil price allowed us to do some analysis on the often-mentioned “rocket and feather” effect on fuel prices.
In case you’ve not heard of “rocket and feather,” it’s the theory that petrol prices rise fast like a rocket when the oil price increases, but fall slowly like a feather when they go down.
While the validity of the rocket and feather theory is hotly debated, we can state that our internal figures haven’t shown any evidence of rocketing prices on this occasion. The average price for unleaded on November 30th, the day the production cut was announced, was 113.9 pence per litre. A week later, on the 6th December, the average was 114.6 pence per litre. Yes, this was an increase – but only to the tune of 0.7 pence per litre on average.
For diesel, the per-litre prices were 116.3 pence and 117.0 pence respectively over the same time period – the same 0.7 pence average increase.
To be clear, we’re not seeking to ignore the fact that oil price rises sometimes quickly affect prices at the pumps, but the analysis of our figures suggest that scare stories about nine pence per litre increases and “overnight rises” were rather sensationalist, and not borne out by what actually happened.
Will the oil price remain high?
In fact, this week we’ve already seen the oil price dip once again before making a slight recovery. With other non-OPEC nations coming across as reluctant to join any production cut, some analysts still believe volatility will continue – and that oil prices will struggle to settle much beyond $50 per barrel.
Another factor worth noting is that with the festive season underway, retailers (i.e. supermarkets) will do all they can drag customers to their stores. If this means sacrificing fuel profit in return for trolleys full of purchased shopping, the chances are the supermarkets will hold back on any significant increases for now.
So while we can’t predict what will happen next year, we’re cautiously optimistic we’re not going to see a real “rocket” effect this side of Christmas. Doom and gloom sells newspapers, but it seems to all be rather over-the-top this time around.
Do you believe in the “rocket and feather” theory? Let us know in the comments.