Why is the price of fuel increasing again?

Why is the price of fuel increasing again?

If you’re a driver, you can’t fail to have noticed that the cost of a litre of both petrol and diesel have risen significantly in the past few weeks. Back in the summer, the cost of either was dipping as low as €1.50 or thereabouts per litre, whereas now they’re both back above €1.80 per litre and the prediction is that they’ll hit the dreaded €2 per litre by Christmas.

So, why are both petrol and diesel suddenly becoming more expensive again?

The answer is two-fold, and one part of the answer is specifically Irish. Back in 2022, with the prices of all energy sources soaring in the wake of Russia’s brutal invasion of Ukraine, the Irish Government implemented a temporary cut in the duty charged on fuel. That duty is part of the enormous tax cost levied on each litre of fuel we buy at the pump, and generally accounts for at least 60 per cent of the price of each litre.

The cut, in 2022, knocked 21c off a litre of petrol, and 16c off a litre of diesel, as a way of ameliorating the war-related cost increase and easing the impact of the recent hikes on the cost of living. The relief came with a sting in the tail, though — the Government did say, at the time, that the reduction in duty would eventually be reversed.

That reversal has been happening in stages since June of this year, with another increase in September, and a final one due at the end of October. It’s expected that the October 31 increase, putting fuel duty back to its pre-2022 levels, will see an 8c increase in the cost of petrol, with diesel going up by 6c.

It means that a full 60-litre tank of petrol, which would have cost you €90 back in May, will cost you more like €113.40 on November 1.

The Government’s decision to apply the reinstatement of full fuel duty now has been added to by broader global events. Obviously, Russia itself is a major producer of oil, and the embargoes levied on Russia because of its invasion of Ukraine have mostly shut that supply off. That’s a big enough shock, but there’s more happening.

The price of crude oil, globally, is essentially set by OPEC — the Organisation of Petroleum Exporting Countries — which is led by Saudi Arabia. While it’s unquestionably a cartel, there’s no international legal mechanism that would put a curb on its efforts to keep the price of a barrel of oil at a level that’s, by OPEC’s reckoning, sufficiently profitable. Oil prices significantly dipped this past summer — Brent Crude, which is the oil price index that Ireland largely draws on — fell as low as $75 per barrel.

In response to that, OPEC has been steadily cutting production since then, and that has pushed the price of a barrel of crude oil to $84 today, with expectations that it will hit $100 before Christmas. While taxation makes up a significant proportion of the cost of a litre of fuel, the cost of a barrel of crude oil has a similarly huge effect — 85c per litre of the cost of petrol is accounted for by the cost of crude oil, with 99c for diesel, at current figures.

OPEC’s plan, it seems, is to trigger a major global oil shortage in the coming months, which will be exacerbated by a recent increase in demand for air travel, as well as potentially higher heating demand in winter. The oil-producing cartel is also looking nervously at predictions from the International Energy Agency, which is suggesting that ‘peak oil’ — after which the global demand for petroleum products will begin to decline — could come as soon as 2026, given the speed at which renewable energy projects are stacking up.