Brent oil price drops but UK petrol price to shoot higher

16 March 2010 16 March 2010

BonTrade

Brent oil prices dropped in trading on Monday around two percent lower amid a report that UK petrol prices could hit a record high of £1.20 a litre in the next few weeks, according to the AA. Increases in the wholesale price of petrol since January are to blame for the rise in forecourt prices, the AA commented.

April Brent crude oil futures on London’s ICE Futures Exchange, which expires at settlement today, fell 27 cents to $77.62 a barrel.

The price of oil is a major determinant of the price of petrol for the UK market, and yet the current oil price of about $80 a barrel is far below the $147 a barrel high seen in the summer of 2008, the last time petrol prices neared £1.20 a litre. But here’s the difference, in the summer of 2008 one UK pound would buy around $2 dollars which is not the case today as a pound will buy only $1.50. Remember, a stronger US dollar makes oil more expensive for holders of other currencies, including UK Sterling.

“The US dollar has bounced back and it’s not looking as weak as expected,” he said, adding that economic recovery is also in doubt after ratings agency Moody’s Investors Service warned of risk of downgrading the top-level credit ratings of the US, United Kingdom, France and Germany.

Lindsay Hoyle, a UK Labour MP on the Commons business committee, told the Daily Telegraph: “Crude oil has gone up this year, but nothing like the rise in petrol prices. Motorists are being legally mugged at the forecourt by petrol companies.”

Separately, the UK’s planned April 1st 2010 tax hike will add another 3p in duty and VAT to UK fuel costs. It seems that many in the UK could benefit from the petrol and oil price relation by not only looking at the current price of crude oil per barrel, but also looking to the current exchange rates against the US dollar, which is the currency oil is priced at.