Petrol prices in Republic should be 10% cheaper, report claims

Petrol prices in the Republic should be much lower than they are, with retailers too slow in passing on reductions to consumers, according to a new economic analysis.

Dan McLaughlin, Bank of Ireland chief economist, argues trends in both oil prices and wholesale petrol prices show that consumers should be paying about 10 cent less per litre for their vehicle fuel.

"To me, what's happening is consistent with much lower petrol prices in Ireland," Dr McLaughlin said.

Current fuel prices are difficult to measure consistently, but research from AA Ireland showed that unleaded petrol was being sold, on average, at 122.7 cent per litre last month.

The AA conducts its petrol survey in the second week of every month, with this month's research expected to show that petrol prices have declined by between six and seven cent since the July survey was conducted.

The 6 per cent decline, which would leave an average of about 116 cent per litre, would reflect declines in crude oil prices in the intervening period.

Dr McLaughlin believes, however, that the reductions have not yet gone far enough.

He pointed out that crude oil, the ultimate driver of petrol prices, has declined by about 15 per cent in the past month.

Coupled with this, he said, wholesale petrol prices have dropped even more sharply. Wholesale petrol at Rotterdam, an indicator for Europe in general, have fallen from $800 (€631) per tonne in early August to $580 per tonne as of Friday.

This marks a 27.5 per cent reduction and, even though prices for refined product and wholesale product can sometimes fall out of kilter, Dr McLaughlin said the extent of the fall is significant.

He has converted the wholesale prices into a "reasonable level" for Irish retail prices, taking account of profit margins, currency adjustments and taxes.

"It should be equivalent to around €1.05," he said. "I think, arguably, petrol prices should have been lower in the past few weeks."

Dr McLaughlin accepted that some retailers had already been selling unleaded petrol below €1.10 but said others had been too slow in following.

"I just think it's been a bit tardy."

He pointed out that a 10 per cent fall in consumer petrol prices would knock 0.3 percentage points off the Republic's inflation rate, which reached a three-year high of 4.5 per cent last month.

Conor Faughnan, public affairs manager with AA Ireland, said Irish petrol prices tended to follow a "reasonably healthy" trajectory in the Republic, but warned that some service stations would always charge too much.

AA advises consumers to shop around for what is at base a homogenous product and to monitor expenses by buying their fuel by volume rather than by price.

"It's just a matter of looking at the other dial," Mr Faughnan said.