Fuel for Thought

The Cost Of Fuel Explained

fuel for thoughtOver the last few months, fuel prices have fluctuated almost at a daily rate, with the national average being 159.9c for petrol and 149.9c for diesel. This a 10c increase from the fuel price the same time last year . In the first quarter of 2012 national average fuel prices reached highs of 167.9c for petrol and 159.9c for diesel. However, since then we have seen a relatively slow reduction in fuel prices drip-feeding through to the petrol stations.

How are petrol prices calculated?

We all are guilty of thinking that forecourt retailers are artificially inflating fuel prices at the pumps to make us pay more in already tough economic times. However, if we look at the actual break down of how fuel prices are calculated for petrol and diesel, we can see that the retailers only take an 11c per litre margin (estimated) on fuel.

What causes the price hike in petrol and diesel?

The cost of fuel is based on a complicated method between oil suppliers and the exchange rate markets. The strength of the dollar against the euro can affect the price we pay at the pump but it stems further back to the cost per barrel of oil from source.

The prices of petrol and fuel are a result of a variety of factors including crude oil prices, the cost to process and distribute the fuel, demand in the local area or country, the strength of currencies and government taxation. The above info graph highlights the proportion of government taxes on the cost of petrol per litre, and we are all too familiar with the ever increasing taxation on a litre of fuel in nearly every budget from the Irish government which inevitably lead to huge queues and panic buying at the pumps before the new hike is introduced.

Crude oil is the most traded commodity in the world, and due to this, trading prices are similar worldwide. The price each country pays at the pumps is determined by the government tax and levies imposed. In some regions such as Europe and Japan, the government imposes higher taxes on fuel, and some such as Saudi Arabia and Venezuela have the cost subsidised. On average, Western countries have the highest usage per person. For a small island like Ireland, we have relatively high fuel usage for motor, home and transport. Ireland relies heavily on import and exports, thus increasing the demand on fuel.


The demand in fuel has a knock on affect on the cost of extracting and refining it. Between 2004 and 2008 the cost of crude oil per barrel rocketed to $140 due to an increase in demand. This in turn had a knock on affect on the cost of fuel prices per litre

Economic expansion and growth causes demand to rise which in turn increases the costs of providing fuel.

When the US Dollar is weak against other international currencies, this affects fuel costs as exporters demand higher prices to compensate for the money lost in a weakened and devalued currency. At present, we are seeing strengthened Dollar which is allowing the cost per barrel of crude oil to stabilise and slowly reduce. It is estimated by Pumps.ie that the cost of a barrel may fall to the $50-60 region, allowing consumers to enjoy a reduction in fuel prices maybe even as low as 1.54 for petrol and 1.44 for diesel in the coming weeks . Watch out for further reductions in petrol prices which may bring it below 1.50.

Overall, fuel is a necessity for most of us whether it's to run our cars, vans, motorbikes, heat the house or rely on public transport; so more competitive fuel prices naturally make for happier consumers. If you have an Android or iPhone, its worth downloading the Pumps.ie app for free which gives you real time updates on the petrol prices near to you and in a set radius. This app is a definite must have for any driver! Plan your re-fuelling stops carefully to ensure you get the best value, and drive economically to increase your miles per gallon.

Source: www.pumps.ie. Fuel prices correct as of June 26th 2012 compared to June 26th 2011.
Source www.investorguide.com
Source www.pumps.ie