Low petrol prices is good news for frugal motorists, but an oily ragger has asked why, given the collapse in crude prices, petrol pump prices are not a lot lower. The answer is actually quite simple.
At US$27 a barrel, crude oil prices are at their lowest level since 2003, and a long way from the $100 a barrel it was about 18 months ago. Most oil market watchers think its going to go lower still due to lower demand from China and more oil coming on tap.
The reason why pump prices have not fallen as dramatically is because about half of the price you pay is not for the petrol at all – it’s tax. Another quarter is the actual cost of the refined product and the remaining quarter covers the overheads and retail margin.
In other words, only 25% of the final price is made up of the variable price of the oil itself, and that is also affected by changes in the exchange rate. The other costs are either fixed or are not affected by the oil price itself. As it happens, in recent years the government has upped the tax on fuel and got its sticky fingers on more of your dollars.