The reality of the rising cost of fuel

Picodi

Reporter:

Picodi

Legitimate fuel trade will collapse if smuggling is allowed to continue unabated

So what are we really paying for at the pumps?

We are all too aware of the rising cost of refueling our cars. Here website www.picodi.com looks at just what is driving these fuel hikes.

The base of the petrol cost is its price at the refinery, which consists of crude oil price (excavated abroad) and the costs of transportation and refining. Together it’s around 31% of the final price.

The petrol station’s owner also has to add a margin to the cost of the fuel they stock. However, before we jump on the bandwagon of blaming business owners, here is the reality. Petrol station owners have to bear the costs of transportation and charges out of their margin. They also have to cover the costs of expenditures, like employees’ salaries, taxes or necessary service and control of equipment. Interestingly, the average yearly petrol margin (around 8%) is too low for petrol station's to turn a profit on fuel. To stay in business petrol stations have to sell other products, sometimes at higher prices than in normal stores. The reality is, petrol stations don't make money on the fuel they sell, they make money by diversifying. In reality the shop and other services is what keeps these businesses afloat.

The refinery price and owner’s margin combined give 39%. It’s not even half the price! What about the rest then? Charges and taxes make up more than half the petrol price.
The remaining 61% consists of the money we give to the state—in the form of VAT, excise and NORA levy. Let’s have a closer look:

- Tax – petrol is charged with 23% rate VAT (charged on the net price with excise and NORA levy);
- Excise – 59 cents per litre. It’s levied on a per-litre basis and not as a percentage of the price, which means when the cost of fuel falls, the tax remains at the same level;
- NORA levy – the main purpose of the Nora levy is to fund the maintenance of Ireland’s strategic oil reserves, 2 cents per litre.

Why do the prices at petrol stations differ?

Since we already know the components of petrol price, there’s one more question left: why at some stations we can refuel cheaper than the others? The answer is easy—it depends on the margin set by the owner.

The margin (and hence the final price of petrol) is lower where the strongest competition is, therefore in places where many stations in close proximity are. That way the owners want to convince consumers to refuel at their place. Oftentimes we’ll find the lower prices at supermarkets which have their own stations. Why? Their managers hope that if we stop for the cheaper petrol, we’ll also go for shopping in their stores.