There is plenty of attention on plunging oil prices at the moment as oil teeters around the $30 per barrel mark having traded as high as $115 per barrel in June 2014. Two pieces of research from Brewin Dolphin and UBS highlight why the black stuff might be more expensive than these headlines figures suggest.
First Brewin Dolphin’s head of research Guy Foster notes the latest views of the International Energy Agency. In summary although falling oil prices should be reducing the energy costs of emerging markets a collapse in the value of their currencies against the US dollar (in which oil is denominated) means they are not seeing the full benefit.
In a separate UBS note its in-house economist Paul Donovan writes: ‘Nobody uses crude oil. In the real world it is the retail price of refined oil that matters to consumers, inflation and inflation expectations.’
He highlights the fact that as of the end of 2015 the retail price of petrol was down around 20% across a sample of major economies against a crude oil price down 60% over the same period. The chart below details the position for individual countries.
Donovan adds: ‘Crude oil has to be refined before it can serve any economically useful purpose, and that adds a further labour cost to the price. Oil also has to be distributed and retailed, before it is of any use to the consumer.’