We are all only too painfully aware of the current expense of diesel. Pump prices north of €2.00/L would have been unthinkable a year ago, yet now we find ourselves in just that situation.

But are these prices justified?

Diesel prices rise quicker than oil

We are told that it is all due to the high price of crude oil, yet it is not at a record high – certainly not when we adjust for inflation.

By tracking the price of crude oil over the last four decades, in this case Illinois Sweet, as the figures are readily available, a picture emerges of a growing detachment between the cost/barrel and what we pay on the forecourt.

Over the last few weeks we have seen diesel prices approaching €2.10/L, although they have, thankfully, dropped back since. This at a time when the average cost of a barrel of Illinois Sweet stood at $103.4 in May.

Historic peaks

The cost of the same oil reached $126.33 in 2008, yet the price at the pump in Ireland was just €1.26/L at the time.

Another peak occurred in 2011 when crude oil reached $102.15, but, down on the street, diesel tanks were being filled at an average €1.43/L over the year.

Fuel prices crude oil
North America has its own sources of oil to fall back on

It is generally accepted that the situation in Ukraine is the cause of this latest price hike, yet that does not explain the present gap between crude and retail prices.

Increasing margin

There are 159L of crude oil in a barrel. Knowing this, we can calculate the margin between the raw material and the finished product we put in our vehicles.

Year / Ave price>Litre of crude $*Litre of Diesel €**Margin €
2022 (Jan)0.481.801.32
2022 (May)0.65 1.98 (2.12)***1.32 (1.47)***
*Crude price based on Illinois sweet which trades at a lower price than Brent. **Historic diesel prices from CSO. *** before 15c excise cut

The figure that immediately jumps out is the difference between the margin today and what it was 14 years ago; it has nearly doubled over that time period.

Other than that there is a clear trend towards a widening of the margin over cost, which will no doubt be partly due to refinery and distribution costs rising, but it is difficult to see how that can account for it all.

Diesel and the taxman

However, fuel prices are not just about crude prices, there are government taxes and excise duty to be added to the product exiting the refinery.

For diesel for road vehicles these amount to around €0.92/L at the current price, for petrol they amount to €1.02. Excise on green diesel is 26c less than for standard diesel.

The tax rates have not moved up, indeed, excise has come down, so what are the reasons for the unprecedented cost of diesel today?

An easy, but incomplete answer

The blanket excuse is ‘Ukraine’, and there is no doubt that crude oil prices rose as the situation deteriorated over Christmas and the New Year.

However, from March, the price has remained stable, it even dropped in April, yet we have seen a relentless rise in pump prices only partially offset by the reduction in excise duty which is now to run until October.

Fuel prices diesel
Shipping costs are just part of the equation

There are obviously other factors involved but quite what they are remain obscure.

One suggestion is that eastern countries are acting as brokers to circumnavigate the sanctions.

India, in particular, has ramped up its oil purchases from Russia dramatically, importing 20 times more this April than they did a year ago.

Naturally, middlemen like to take a cut, but they are buying at a price below the recognised world price so there is some doubt as to whether that can be the sole reason for the steep increases.

Lack of clarity

There is a tremendous fog of confusion enveloping the oil market at the moment. Invoking one simple reason may account for some of the forecourt figures, yet it would be naïve to think that there are no other, less obvious, factors at play.

Looking forward we can take comfort from the fact that crude oil price appears to have found a new level and is staying there, hopefully to return to more reasonable levels in the near future.

Much of that will depend on the politics surrounding Russia and the ongoing war.

Europe cannot cut itself off from such an energy source forever and there are signs that Putin may have achieved much of what he set out to and the bear will not progress deeper into Ukraine.

Hopefully, the bloodshed will cease sooner rather than later and both sides will settle down to talk things through, and then we might see a restoration of our energy supplies and a reduction in price. Fingers crossed.