Cutting out the nonsense about petrol (gas) prices

No one, outside the oil companies, is happy at the current high price of petrol (gas, for my American readers), currently at least £1.10 per litre here which equates to about $10 per gallon in US units. British customers are threatening blockades and boycotts in an attempt to bring the price down. It won’t work, of course, and Sam Norton explains why. International oil prices may rise and fall a bit but the long term trend must be upwards, because oil production is gradually falling while demand is still rising. This means that all of us are going to have to change our habits to use less oil.

How can this happen? Well, in principle the government could intervene with a rationing scheme, but I don’t think anyone wants that. If the market remains free the only other way of balancing supply and demand is to allow the price to rise, on the forecourts as well as in the international markets. That is the only effective method of cutting consumption. It is of course a blunt weapon, with disproportionate effects on the poor and on those living in rural areas – and perhaps on small businesses. These especially bad consequences can perhaps be mitigated with tax breaks, and it is good that the British government is considering them. But the government cannot deny the unpalatable truth, that high petrol prices are here to stay. So we all need to change our habits to use less. If we don’t do this voluntarily, which is unlikely, we will be forced to do it by spiralling prices.

One significant positive step that the government could take, perhaps necessarily in co-operation with other governments, is to charge as much tax on aviation fuel as on petrol. That would put a dampener on the boom in cheap flights, catering mostly to people who don’t need to travel, or who fly because it is cheaper than overland and under-Channel travel. Putting a brake on this rapidly growing use of fuel would help to provide more for the rest of us and keep down prices for essential uses.

And all this is quite apart from the good environmental reasons for burning less oil, and for higher prices as a way of ensuring this.

0 thoughts on “Cutting out the nonsense about petrol (gas) prices

  1. Peter,

    In all fairness to the oil companies, (and I’m not saying they’re completely innocent) one of the reasons prices are so much higher in the UK than abroad is that our government taxes us so much. In 2005 70% of the price of petrol was tax. I believe the likelihood is that its probably a higher percentage now. But at that rate the fuel companies get 33p and the government gets 77p.

    That in my mind is on the verge of being (morally) criminal.

  2. Mike, you are of course right that a lot of the price of petrol is tax, and also a large chunk goes into oil companies’ large profits. But think what would happen if these taxes were abolished or cut significantly. Demand for fuel would leap up, outstripping supply, so the price would also leap up, probably right back to where it is now. The only difference in the long run is that the cash would end up in the oil companies’ coffers instead of the government’s. And the advantage for us all of it going in the government’s coffers is that that reduces the amount they have to raise from us in other taxes.

  3. Part of it too, is people (mostly the government educated) don’t know the difference between a profit and a profit margin and cast the oil companies as evil because of it.

    Also, we could open up the ANWAR (Alaskan Reserve) which was specifically set aside for instances like this – but the Liberals and the Green party won’t have it!

    Much of it is about control more than anything else – the Democrats here in the US want so badly, they are just dying, to be Socialists (we’re a lot more socialist that we admit already and the Liberal Democrats hate democracy (and the Military) though they won’t admit it) even though places like France are screaming out that socialism just does not work.

  4. Surely by that thought process the high price of petrol is in fact good for us, as it is an (almost) optional tax.

  5. Brian, sorry to be slow accepting your comment, which was caught for moderation for some reason while I was away.

    If looking after the environment properly according to Genesis 1:28 is socialism, then I am all for socialism.

  6. In the FIRST QUARTER of 2008 – Exxon earned $10.89 billion. The amount was short of the all-time record Exxon set in the previous quarter

    –That’s not too bad.

    There’s many a shady practice going on with their refinement, production numbers, storage and supply.

  7. Indeed, J, they are making huge profits, and I don’t approve. But if they brought the price down they would not be able to meet the increased demand. If the US government raised taxes, the oil companies would have to keep the price at the pump more or less the same, so that the more or less fixed amount they produce is sold, and so reduce their profits. The economics of this one are very tricky!

  8. Pingback: Gentle Wisdom » Essex vicar predicts the end of the world as we know it

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