Crude prices have risen by more than 100% in the past 18 months, reflecting strong demand from the US and China.
Last week it reached the highest ever level at US$66 a barrel, pushing petrol costs as high as £1.10 a litre in London. Diesel prices reached £1.24 per litre in Blackpool.
Average prices are still below £1 a litre but the average price of a gallon of petrol has now passed the £4 benchmark. Diesel broke that barrier a few months ago.
The rises mean motorists in Britain are spending £7.5 million more on fuel each day than they were in January. Because fleets have higher mileages, the lion’s share of this cost will be borne by companies.
Several factors are driving up the price of crude oil. The war in Iraq destabilised relations between the Middle East and the West. The death of King Fahd of Saudi Arabia, and the US’s decision to shut its embassy in the country over fears of a terrorist strike, have increased nervousness about future Saudi oil supplies.
The country accounts for one in every seven barrels of oil consumed in the world. Prices have also been pushed up amid uncertainty about Iran’s decision to resume its nuclear energy programme.
The country is the second largest oil producer in the Middle East and many are worried about the political implications of its controversial nuclear ambitions. Meanwhile, the US has struggled with a series of accidents at nine of its refineries, leaving them partially or completely incapacitated. This has fuelled concerns about supply in one of the world’s biggest consumers of oil.
The AA expects average prices to reach £1 a litre by the New Year if the current rise continues.
Adrian Waters, head of commercial sales at AA Business Services, said: ‘The rise could have a significant effect on businesses running car fleets.
‘They need to consider how to manage these escalating costs in the long term. If fleet managers encouraged drivers to stick to the speed limits on motorways, they could save one litre for every 20 miles they drive. They should also recommend limiting the use of air-conditioning, which adds 10% to fuel consumption.’
Supermarkets are generally offering lower prices than rivals because of the economies of scale that allows them to buy lots for less.
Ray Holloway, director of the Petrol Retailers’ Association, feared many independent garages, which do not have the buying power, could go out of business.
This issue of declining forecourt service station numbers was raised on FNN last week.
For fleets, rising costs will take their toll. Vehicles are the second highest cost of a business after salaries and fuel is the largest expense of a fleet after depreciation.
Garry Hobson, managing director of Masterlease, said: ‘UK business could be paying at least a third of a billion pounds extra each year for fuel and that’s just for the company car fleet, without taking into account logistics costs of transporting goods. That’s almost a £1 million cost to the industry for every day that the fuel price remains this high.
‘It is important that in the long-term fleets seek advice and do not make hasty decisions based on these face value prices.
‘Any company fuel strategy should be based on long-term planning, not knee-jerk reaction to a volatile market.’