Although most of the economy remains in lockdown, demand for oil has steadily begun to increase and the price of a barrel is now back close to multi-year highs.
In April of last year we also wrote about the price of oil. However at that time it was telling a very different story.
The Covid pandemic, a shattered economy, and a big glut in the supply of oil had led to its price falling rapidly on wholesale international wholesale. In fact, at one stage in mid-April, history was made when the price of American benchmark oil turned negative.
However, since that historic day the price of oil has steadily been creeping back up and it’s now back to its pre-pandemic high of around $60 a barrel having increased more than 50% in the past three months alone.
And while the price will no doubt fluctuate over the coming months as it usually does it looks like higher oil prices are here to stay.
But how are prices increasing seeing as we’re still in the middle of a worldwide pandemic and what does it mean for consumers' pockets?
Why is the price of oil increasing?
Although the Irish economy remains very much in lockdown mode, that’s not the same everywhere else.
Firstly, China, the world's second largest economy, is booming, with the country having largely contained the virus allowing economic activity and the demand for oil to return to previous levels. Other large economies like Australia's are under far fewer restrictions than we are.
Secondly, even in places like Ireland and the UK, which remain under lockdown, economic activity and the demand for oil has begun shifting elsewhere as we adapt to 'the new normal'.
As consumers are buying more online, this has spurred demand for fuel to power delivery trucks and vans, along with cargo ships and freight trains.
The e-commerce boom has also led to an increase in demand for plastic packaging, which is made using oil products.
Finally, some of the world’s top oil-producing countries have cut their production over the past few months to try limit the supply of oil and help boost prices. Which is having the desired effect.
What will it mean for consumers?
Firstly it will mean higher prices at the pump. But not as much as you might fear.
Over 60% (c. €0.70 at present) of the price you pay on the forecourt for a litre of petrol goes directly to the Government in the form of excise duty, VAT and carbon tax. Slightly less for diesel. Oil only makes up around 20 to 25% of the price; the rest being the retailer's profit margin.
So a 50% increase in the price of a barrel of oil is not going to equate to a corresponding increase in the price of a litre of petrol or diesel.
Also, oil is priced in dollars. But the euro has increased against the dollar on foreign exchange markets over the past year or so, meaning when we adjust the price of a barrel of oil back into euro, the increase in price hasn't been as great.
And while it will unfortunately lead to a big increase in the price for filling up a tank of home heating oil, it won't lead to higher electricity bills. This is because we barely use oil anymore in Ireland for generating electricity and haven’t done so for several years. This is largely due to environmental reasons as we aim to cut our carbon emissions and move towards using renewable energy instead.
In 2018, according to the Sustainable Energy Authority of Ireland (SEAI), only 0.5% of electricity generation in Ireland came from oil. And this has probably decreased further since. So no matter how expensive oil becomes, it’ll have a negligible impact on electricity prices in Ireland.
Energy prices on the rise
While the increase in oil prices won’t impact household energy bills, there has been a spate of gas and electricity increases in recent months. This is primarily due to world economies reopening post-pandemic.
If you’re looking to offset increases, consider switching energy supplier. It’s quick and easy to do on bonkers.ie and could save you between €400-500 annually on your energy bills!
Consider reading one of our helpful energy guides, such as our frequently asked questions about switching energy supplier, to ensure you make an informed decision.
If you’re still in contract, you could be subject to an early exit fee for switching supplier. However there are still ways to reduce your energy consumption and save money. Take a look at these 15 easy ways to use less electricity and save money or learn how to heat your home for less here.