Jason Durden: Prices likely to surpass the levels seen in 2008

AS FORECOURT prices soar towards 120p per litre, interest in fuel prices is again growing.

As the politicians wade in to the debate, many are asking why, with the crude price just over half of its peak, we are facing record pump prices.

Certainly, the price of crude oil is very important, but a complex dynamic also exists between the profitability of refining crude and the price of petrol/diesel.

Of the other key variables, the exchange rate and taxation feature heavily in understanding the current price at the pumps.

The refining margin has been increasing this year, having reached levels which saw refiners in the key United States market reduce production to historically low levels.

Ahead of the forthcoming peak-demand US summer driving season, buying activity in gasoline markets has strengthened the gasoline price relative to crude prices.

The immediate outlook is bleak for the motorist. Commodity oil and fuel prices have increased significantly over the past year, as the markets anticipate, perhaps prematurely, the improving global demand for oil and oil products.

Against that, refinery profitability has risen to a more commercial level, which should sustain any global increase in product demand through the summer.

Against that, the increases scheduled for UK fuel duty and changes to bio-diesel taxation in the UK from 1 April mean petrol and diesel prices are very likely to match, if not surpass, the levels seen in the summer of 2008.

• Jason Durden is publications manager at the energy procurement consultants EnergyQuote incorporating John Hall Associates.