The impact has been most pronounced in the UK and the EU because of the weakening of the euro and sterling against the US dollar. Record oil prices in these currencies are aggravating the distress for many firms and households, already suffering as a result of the region’s debt crisis and faltering growth.
Euro oil prices reached an all-time high last Friday at €93.26/barrel, just surpassing the previous record of €93.06/barrel in 2008, when Brent oil prices denominated in US dollars reached $146.08/barrel. Oil prices measured in dollars are still around 16% lower than the peak of 2008.
Although petrol prices have surged with the recent peak in crude prices, the rise started from a significantly higher base than during the previous highs in July 2008 and April/May 2001. When petrol prices peaked in 2008 at $4.165/gallon, petrol prices had increased by 46% from the 2007 average petrol price of $2.84/gallon. This year, by contrast, US pump prices have increased by 6% to average $3.78/gallon compared to the base (average 2011) a $3.58/gallon. For European consumers the story is very similar. European petrol prices (measured in euros) this year have increased by 12% from the base, compared to 59% in 2011 and 69% in 2008.
Rising crude prices have less impact on the total cost of fuel paid by retail customers and businesses in the EU than in the US because Europe’s energy taxes are higher. Taxes accounted for 60-66% of the retail cost of a litre of fuel in the UK, France, Italy, Germany and the Scandinavian countries compared to 16% in the US in 2010 (OPEC). If we exclude the effect of exchange rate changes, rising crude prices thus have a much bigger proportional impact in the US than in the EU. But once the currency effect is taken into consideration, it is the European car owners who have been left facing record prices of petrol.
We do not expect the situation will improve very much for European car owners in the near future. The euro will continue to weaken against the US dollar and oil prices will remain high, at an average of $118/barrel in Q2, with a risk of much higher prices if the tension between Iran and the West escalates. In addition, we expect the petrol balances to tighten going forward as refinery closures in the Atlantic Basin will outweigh net additions.
