A colleague asked me why petrol (gasoline) prices in the UK have not fallen in line with the Crude Oil Price.
From the peak price of $145, crude oil is now around $45 per barrel, a fall of nearly 70%.
The prices we pay per litre of petrol has fallen only 25%
I did a quick calculation to show him that we have benefitted in full.
|Pump Prices for Petrol (Gasoline)|
|£ Per Litre (Incl VAT)||£ Per Litre (Excl VAT)|
|Crude Oil Price|
|$ per barrel||£ per barrel||£ Per Litre|
The price at the pumps includes VAT (Value Added Tax). Until 1st December it was 17.5%, then reduced to 15%.
Since July the British pound has fallen from £1=£2 to £1=$1.50, partly offsetting the fall in the crude price.
That the oil companies have had a small reduction in their margins. Extrapolating, if the cude oil price went to zero, the pump price would still be around £0.70p per litre (around $4 per US gallon). Most of this is due to taxation. This has increased by over 50% since the mid-1990s, when pump prices (with 17.5% VAT) fell below £0.50 per litre.
The margins of the oil companies may have reduced slightly, but are largely irrelvent to the calculation.