Petrol companies have doubled the amount of profit they make per litre of petrol by refusing to pass on to consumers the significant drop in the price of oil.
The prices of Brent Crude oil, the grade most commonly used in Britain, and West Texas Intermediate (WTI), the American standard, have fallen more than 70pc since the start of the year.
A lack of demand due to coronavirus, which has grounded planes and halted manufacturing, has been exacerbated by oil-producing countries refusing to reduce the supply.
Last week, future sales of WTI fell into negative territory for the first time ever, dropping as low as -$37.63 per barrel before recovering. Yet these unprecedented prices have not made it to petrol forecourts….
It takes a month or three for crude to make it from the pipeline delivery point through the refinery and out to forecourts.
One of the things that is causing this drop in price at the pipeline end being that we consumers aren’t sucking it out of the forecourt like we normally do. So, what is in the forecourt will have been bought, largely enough, at those old and higher prices.
Sure, the major oil companies all value their oil at today’s purchase price. This is why when there’s a price drop they all make staggering, horrendous, losses, as they revalue work in progress at today’s purchase price. This is also why they make gargantuan profits in a rising oil market. There’s not all that much reason why they should do it this way, rather than taking average, or historic or some other valuation measure. But it is the way they do it.
But petrol stations themselves don’t. Or often don’t perhaps. What’s in the tanks of the station today has been charged at price on delivery date by the oil majors. And until those tanks are refilled – exactly what isn’t happening in this time of cratered demand – then the stations themselves aren’t going to reprice.
Well, of course, some of them will, competition does that sorta thing. But now, right now, the petrol price being more than a little unlinked from the crude price, yes, this is what we’d expect. For the very same reason that the crude price has cratered.