Sometimes, I wish I could drink petrol….

Wednesday, 23rd May 2018

Sometimes, I wish I could drink petrol….

The price of oil is climbing….

On Tuesday evening, a barrel of Brent crude was priced-up at $79.35….

That’s an increase of more than 45% across the last 12-months….

Great news if you own an oilfield. For the rest of us, it’s going to lead to further strain on the wallet….

  • Limited supply – but no shortage of demand….

America’s recent withdrawal from the Iran deal and renewed tensions in the Middle East are both factors in the most recent price actions in the oil markets….

But oil has been on a charge for a while now. And mainly because production cuts have served to decrease global supply….

But nobody is going to open-up the spigots and let the black gold flow more readily. You can rely on that….

OPEC agreed in 2017 to extend production cuts throughout this year. That means supply will remain limited until further notice….

There will be no shortage of demand though. That’s something else you can be sure of….

It doesn’t matter what economic activity you care to select – it has a clear and direct dependency on oil. There are not too many businesses that don’t need it or use it in one form or another….

Consumers are hopelessly addicted to the stuff too….

In this hothouse environment (one of constant demand and dwindling supply) prices are only ever going to go one way – up….

And they will go up across the board. It’s already happening….

  • Live from the petrol pumps….

Prices on the petrol station forecourt have risen to their highest level in 3-years….

The average price of petrol has risen to 127.22p per liter. A liter of diesel is up to 129.96p a liter. British motorists are paying 25p more for a liter of fuel than was the case at the start of 2016….

And filling up the car might yet get more expensive still….

Some ‘experts’ are predicting that oil will rise to $100 per barrel. And the Saudi Arabians are on record saying that’s where they would like the price to be….

If $100 oil once again becomes a reality, prices at UK petrol stations will go through the roof. Simon Williams, fuel spokesman for the RAC, says this….

‘If the price of oil goes up towards $100 a barrel, we will very likely see a return to the dark days of April 2012 when petrol and diesel hit record highs. Even though the oil price was higher then (around $120 a barrel) today’s weaker exchange rate will lead to similar prices at the pumps.’

Back in 2012, petrol hit a high-point 142p per liter. Diesel hit 148p per liter. So, there is still plenty of slack between today’s prices and where they might go tomorrow….

And who is to say they won’t go higher still?

If or when that happens, we might see a return to the kind of fuel protests we saw back in 2000, 2005 and 2007 – with trucks and tractors blockading roads and refineries and consumers engaging in desperate bouts of panic-buying and hand-wringing….

That would no doubt be great fun and hugely entertaining. But it’s something to look forward to in the months ahead….

Right now, I want to ask a question….

  • Is petrol expensive?

I was thinking this week about how the petrol we put in our car gets to the pump in the first place. Turns out, it’s quite involved….

First, the crude oil must be found through a process of exploration….

This basically involves geologists and geophysicists using a variety of scientific methods to seek out oil beneath the earth’s surface – often in remote or difficult-to-access locations….

Once the oil is located, it must then be extracted via an oil-well which is created by an oil rig or an oil platform drilling down deep into the earth or the seabed….

This is a complex process requiring expensive and complex equipment, skilled men and engineering know-how built-up over generations….

Then the crude oil pumped out of the ground must be transformed and refined into petroleum….

Oil refineries are huge industrial complexes – a maze of pipes used to move the oil and other chemicals between different processing units.

Don’t ask me how it all works. I only recently mastered the Expresso machine. All I know is that refining oil is a huge-scale undertaking that doesn’t come cheap and requires enormous expertise….

Then the newly-minted petroleum must be transported to where it needs to go….

This can involve huge multi-million-dollar oil-tankers crossing the world’s oceans. Alternatively, the oil might travel through miles and miles of underground pipeline laid for that specific purpose – some of it under the sea….

Ultimately, petrol tankers – on the road in their thousands – will haul the fuel on its final journey to the station where you and I fill-up….

All that process, all that infrastructure, all that investment, all the logistics, all the complexity, all the people, skill, science, knowledge, technical expertise and miles – and your liter of petrol still costs just 127.22p per liter….

  • Cheap in comparison….

Is that expensive?

Really?

Right now, I’m looking at the price of petrol and marveling at how cheap it is when you think about what’s involved in getting it to the pump….

Especially when you compare it to the price of other vital commodities – just as important and equally as useful as petrol – that no modern family can possibly do without….

Coca-Cola –  £1.30 per liter at my local Tesco….

Heineken Lager –  £3.08 per liter….

Tesco Australian Merlot –  £5.53 per liter ….

A bottle of Guinness Original –  £3.60 per liter….

Copella Apple Juice – £2.00 per liter….

Colgate Plax Cool Mint Mouthwash – £3.50 per liter…

Napolina Extra Virgin Olive Oil –  £6.99 per liter at my local Tesco….

You know, the more I look at petrol, the cheaper I think it is….

I’m getting to the point where sometimes I wish I could drink the stuff….

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths