US crude oil at less than zero 'likely to have only limited effect on Irish pump price'
Fuel prices at the Circle K petrol station on Usher’s Quay, Dublin, yesterday. Motorists are unlikely to see further significant falls in petrol and diesel prices, however. Picture: Gareth Chaney/Collins
Crude oil prices have plunged to below zero in the US, but Irish drivers will not see a significant drop in fuel prices yet, according to the AA.
Communications officer at the AA, Barry Aldworth, said that a significant drop in fuel prices is not expected here.
The price of many US benchmarks, including West Texas Intermediate, or WTI, fell below zero earlier this week, the first time this has happened for oil market.
A barrel of oil was worth minus $37.63 at one stage. It has since increased to a positive price of $1.94 a barrel.
Brent crude, a global oil benchmark which can dictate retail prices in Ireland and the rest of Europe, also fell sharply, to trade at $19.50 a barrel.
“On average since January 2020, the cost of a litre of petrol has fallen from a rate of 144.5c per litre to a current price of 126.9c,” said Mr Aldworth.
He said in the same period, diesel had fallen from a per litre price of 135.9c to an average price of 116.9c.
“People will have undoubtedly seen the headlines that crude oil prices had fallen to a negative level, but that is specific to West Texas Intermediate crude oil and to the May futures contracts.
The negative trading of WTI crude has little to no impact of Irish pump prices... and the more important factor for Irish consumers is the cost of a barrel of Brent crude oil,” he said.
He said the fall in Brent crude was not as sharp as the plunge for WTI.
The AA reiterated that the price of crude oil accounts for around 20% of the retail pump price, with taxes making up the bulk of the cost.
“[Taxation makes] up over two thirds of what we pay for a litre of petrol, and about 63% of the current pump price of a litre of diesel. In fact, the pre-tax cost of a litre of petrol is just over 40c, and diesel just over 43c per litre.”
He said that much of the taxation is at a fixed rate and does not vary with changes in crude oil costs.
As a result, even if the pre-tax price of a litre of petrol was to fall to zero, with no manufacturing costs and the retailer selling the fuel at cost value, a driver could still expect to pay 77c per litre of petrol and 64c per litre of diesel because of the taxes on both fuels,” said Mr Aldworth.
“It’s an unrealistic scenario as we would never get to a position where the pre-tax price is zero, but it does put into perspective how much of what we pay at the pump is made up of taxation,” he said.
