Fuel Prices Meet Economic Illiteracy

With UK fuel prices now over the £1.30 mark for a litre (that’s around $8/US gallon) – locally, diesel is at £1.35/litre – we’re starting to see the usual round of, “let’s boycott the big oil companies until they do something” spam. I normally ignore these, but I’m seeing a fair few being forwarded by people who really ought to know better. There a fundamental economic illiteracy to these emails: even before we take our local circumstances into account, any such action just wouldn’t work. And that’s not because I’m an apologist for Big Oil – I detest Esso/Exxon and always have: as a bunch of rapacious idiots and climate-change saboteurs they have no equal. And, in BP’s case, it’s taken them years of determined stupidity to even begin to get close to Exxon’s duplicity.

So I’d love not to buy from Exxon and I’ve tried to avoid BP ever since they screwed up the North Slope environment in 2006 – a pity because, until the current/just departed regime took over, they’d once been one of the more enlightened energy companies (I use the term advisedly). So I’d like nothing more than to hit each of these where it hurts. However, the course suggested here simply won’t work, because:

  • Only a fraction of the fuel price is down to supply costs and profits (excluding the forecourt, it’s about 32% of pump price).
  • Forecourt operators are independent or chain franchises. Their profits on fuel are about 2-3% – I couldn’t run a business on a 2-3% margin, could you?
  • Taxation in the UK on fuel is about 65% of the pump price
  • Crude oil prices are set by spot markets and not directly buy oil companies or supplier cartels, other than by deliberate supply restriction, and certainly not to the extent that OPEC managed in the 70s.

What if those 300M people were to follow this guy’s advice? Well, we’d:

  • Put forecourt operators out of business (something that’s happening anyway).
  • Make an absolutely trivial difference to Esso/BP revenues.
  • Cost ourselves more by having to travel further to find a garage that’s still open. Hereabouts, that would mean either heading North to Lix Toll (who are the most expensive in the area anyway), 27 miles East to Crieff (Shell) or a similar distance South to Doune (Shell). And the independent in Aberfoyle is already the most expensive fuel I’ve ever seen on the UK mainland, if their local community buyout there hasn’t yet lowered prices.

The only impact we could have on the oil companies would be to drive primary legislation to restrict oil company profit margins – essentially a form of strategic regulation. Again, a government lobby job (and a majorly uphill struggle). A boycott of BP/Esso would achieve precisely nothing other than to drive even more forecourt operators out of business, which doesn’t benefit anyone. Remember, that we still have to buy our fuel from somewhere and where do independents get their fuel? Why from the big refineries, all of which are owned (often jointly) by the big oil companies. So for them, it’s just a different route to market…

So if we really want to do something about fuel prices:

  1. Use less of it – if 300M of us do that, then it’ll hit the supply-side economics alright. Basic capitalism, that, but probably tricky to persuade the Chinese to do likewise.
  2. Lobby the government (UK) to take at least a moratorium on the Treasury treating the motorist as a cash cow and to recognise that, in rural areas, we perforce drive further than urban dwellers and pay more for our fuel: that oft-mooted rural price stabiliser would be most welcome.
  3. As a natural extension of 2, civil disobedience, street protests and revolution. Rather than a Tea Party for petrol (which would involve tipping the contents of an oil tanker into the Forth at Grangemouth – both environmentally unsound and, besides, we’d have to drive to get there), the modern equivalent would be to go Robin Hood – quietly hack the HMRC bank accounts, siphon off their fuel duty and VAT on fuel revenues and redistribute it to the paying motorists, via the DVLA’s vehicle database. Given the general incompetence of government IT systems, it would probably take them years to notice.

Personally, I’m all for revolution but, in the meantime, I’ll just keep on buying fuel as cheaply as I can when travelling and gritting my teeth and buying from the Esso station in Callander.

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