Fuel prices hit by ‘perfect storm’ of economic factors

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Pump prices rising at their fastest rate for five years

A so-called ‘perfect storm’ of market conditions is focussing attention on rapidly rising fuel prices, ahead of the Chancellor’s Autumn Statement next month.

A number of market factors have led to fuel prices rising at their fastest rate for five years, putting the issue of controlling rising fuel costs back up near the top of the fleet manager’s agenda.

Unprecedented combination of factors

The combination of market conditions is unprecedented and unparalleled in our lifetimes. The first, and surely a once in a lifetime occurrence, is the Brexit vote in June which saw the UK vote to leave the EU by 52:48.

As a consequence of that decision, the pound has now fallen to its lowest rate against the US dollar for 30 years, and at the time of writing was just £1 to $1.23.

As oil prices are quoted in dollars, this immediately impacts on the prices we pay for fuel imports. At the same time, talk of a cut in production by the OPEC consortium of oil-producing countries, the first since 2008, has increased wholesale prices of a barrel of oil on world markets.

Thanks to this combination of factors, average fuel prices at UK pumps have now risen by 3p per litre in the last three weeks.

Oil prices approach year-high

According to the latest Fuel Watch data from motoring organisation, the RAC, the price of a barrel of oil increased by 8% during September, finishing the month at $48.35 a barrel.

As a result, pump prices for both petrol and diesel both finished the month higher. The average cost of a litre of petrol was up 0.48p to finish at 112.07p, just below the 2016 high of 112.33p.

Meanwhile, diesel went up 0.42p on the price at the beginning of the month, averaging 113.34p per litre by the end of September, the highest average price since August 2015.

Supermarket prices also rose faster than average prices, with unleaded up 1.1p and diesel up 0.71p by the end of last month.

The trend is clearly upwards as Brent Crude, the global oil benchmark, rose sharply to $52.44 a barrel on London’s Intercontinental Futures exchange by the middle of October.

Autumn Statement

The rising price of fuel is increasing pressure on new Chancellor Philip Hammond not to raise fuel duty in next month’s Autumn Statement.

Previous Chancellor, George Osborne, was able to report triumphantly earlier this year of freezing fuel duty for a record six years in a row and, in his March Budget, despite having initially pencilled in an inflation-linked rise, said that fuel duty would again be frozen, a move that was broadly welcomed across the fleet industry.

The RAC said the current uncertainty should make the Chancellor think again about any possible plans to raise duty in the Autumn Statement:

“The present situation underlines just how rapidly things can change: just eight months ago average petrol prices were around 102p per litre but now they are heading to 116p,” said a spokesman.

Controlling fuel costs

With fuel prices clearly on the increase again, the onus is on fleet managers to look at measures to ensure that fuel costs, the second largest cost on the fleet after depreciation, are kept under control.

One way to manage rising fuel costs is to insist that drivers only use supermarket forecourts when refilling, as prices here are typically lower than the oil companies’ branded sites, often by several pence per litre.

Another tried and trusted solution is to introduce a corporate fuel card which provides an accurate measure of a company’s fuel expenditure, as well as allowing the introduction of a number of management controls and more detailed reporting.

The fleet manager can benefit from management information reports which measure fuel spend by several parameters, including driver details, price, location and current mileage, and which can be integrated within existing fleet management systems.

This also helps managers to identify areas where savings can be made, for example by avoiding motorway service stations, using cheaper filling stations, or by highlighting the use of expensive products, such as super unleaded, by individual drivers or groups of drivers.

Look at downsizing

Another option may be to consider downsizing vehicles to more fuel-efficient alternatives. It may be possible, for example, to replace panel vans on the fleet with smaller car-derived vans which typically have superior fuel consumption figures but may have also suitable load-carrying capabilities.

The opportunity for downsizing is enhanced by many manufacturers introducing model ranges that optimise the use of available space, while simultaneously improving fuel consumption.

Another option may be to introduce speed limiters, especially on light commercial fleets, so that drivers cannot exceed speed limits, thus burning unnecessary fuel. However, as a retro-fit option, this may require a detailed cost-benefit analysis to be carried out before a final decision is taken.

Reduce meetings, improve training

Many drivers travel long distances for face-to-face meetings that may not be strictly necessary. Modern technology including Skype, conference calls and video conferencing, can reduce the actual number of physical meetings that need to take place and hence the miles that require to be driven.

At the same time, eco- and efficiency driver training, which teaches drivers techniques for using their right feet rather less enthusiastically and anticipating road hazards rather than driving up to them, have been shown to clearly reduce fuel consumption and costs.

A league table of driver performance can be successful in ensuring drivers continue to use the skills gained during efficiency training, while peer pressure provides a strong incentive for them to continue to do well.

If you would like more advice on controlling rising fuel costs, please get in touch.

October 21st, 2016|Categories: Driving, Fleet|

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