Fuel Prices – The Rocket and Feather Effect

Have you ever noticed that whenever there is a spike in the price of oil – whether it is a temporary one or a more long term one – fuel prices at the pumps rocket up extremely quickly? What about when the price of oil falls though? Well, when this happens the price at the pump seems to edge down very slowly as though a feather were falling through the sky.

This so called Rocket and Feather effect is once again becoming very noticeable given the recent decline in the price of oil. Since June the price of oil has fallen from around $115 a barrel to around $84 a barrel, a decline of around 25%. In that same time period the cost of fuel at UK fuel pumps has only fallen by around 6%, from an average high of almost 132p per litre in the summer to just over 124p per litre today.

It’s not just fuel where we see this kind of rocket and feather effect either. As we’ve discussed many times in the past, UK energy prices seem to rocket up when wholesale supply costs rise but they float down at a featherlike pace when these wholesale prices fall. This effect can leave consumers very much out of pocket in the price they pay for energy with energy companies reaping the rewards in the form of massive profits.

The currency issue

Of course there are other factors at play when it comes to the price of UK fuel and one of these is the decline in the strength of sterling versus the dollar. Oil is traded in dollars not sterling, so as sterling continues to decline against the dollar its buying power decreases too, making oil more expensive for UK buyers.

We also do well not to forget the amount of tax we pay on fuel and also the effect of the rise in VAT from 17.5% to 20%, all of which have had an effect on the cost of fuel in the UK in recent years.

Prices are coming down

All three of the major UK supermarkets – I wonder how much longer we’ll be able to say that with the rise of discount retailers – all stated in September that they would be cutting the price of petrol and diesel by as much as 5 pence a litre which will be welcome news for UK motorists, but does more need to be done?

How long before consumers become angry?

When prices are somewhat volatile in the oil and wholesale energy markets, price changes can easily go unnoticed as those who do not pay much attention to these markets don’t tend to notice the discrepancy too much. What about when wholesale prices stay low for an extended period of time though? It’s true to say that it doesn’t take long for anger to grow when it seems as though consumers are getting an unfair deal. With the quite staggering recent falls in the price of oil being highlighted more and more in the media at the minute you have to wonder how long it will be before consumers take stock and begin to demand that these price falls are passed on more fairly.

If you want to see how much the cost of fuel in your area compares to the national average and also how it compares to those in other countries then you can do so using the fuel price calculator on the BBC Website.

Have you noticed the so called Rocket and Feather Effect with fuel prices?

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5 Responses to Fuel Prices – The Rocket and Feather Effect

  1. Nice article Adam. I think the proximity of refineries also plays a role in how quickly the prices drop. I wonder what you think about what a long-term low gas price would mean for the electric car revolution? Does it matter or will people think there’s no reason to buy electric since gas prices are lower?

    • Adam Buller says:

      Hey Derrick, I’ve just noticed that Tesla’s share price is rebounding this morning so investors don’t seemed to be too deterred by the low oil price. I guess the thing that we can see from oil over the past 5 or so years is that it is so volatile, with so many factors that can cause it to quickly spike up again. So if people are looking to buy an electric car purely for the economic benefit then I don’t expect the current price fall will deter them much, especially if the price drop is feather like in its drop at the pumps. The electric revolution doesn’t really seem to have taken hold much in the UK yet, are people in the US turning more to electric?

    • Kathy says:

      You are spot on about the refineries, Derrick. The U.S. hasn’t approved building a new refinery in decades so the glut of oil being produced here takes longer to get on the market. However, I do feel the recent drop in prices is due in part to these new oil fields being productive.

  2. Consumers have simply accepted that this is how it is. Gas companies have to adjust prices to avoid to being accused of price gouging, but they’re going to do everything they can to maximize profits.
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