Funny how after a few days of news about slightly falling oil prices, people begin to think that we’re past the worst. Perhaps we shouldn’t be surprised that in the so-called ’silly season’ when there aren’t a lot of news stories around, the daily rags have been full of ’fuel price war’ stories. And that’s because one or two of the supermarket giants have loudly announced a few pence off their previous (record) prices, or even gone back to very blatant cross-subsidy tactics of the ’spend £50 in our shop and get 5ppl off our petrol’ variety. So, back to ’business as usual’ then?
Unfortunately it isn’t quite as straightforward as that. Okay, as this is being written in mid-August we have seen headline prices for ’regular’ unleaded petrol dip back down to 109.9ppl in some areas - led mostly by the supermarkets but with the likes of Shell not far behind (and sometimes even ahead). However, even if this brings some welcome relief for petrol drivers, the story with diesel isn’t quite so good. Prices of between 117.9ppl and 123.9ppl are still common even on those forecourts where the petrol prices are at their lowest. And it is the diesel price which has most impact on the economy as a whole.
But what of the petrol retailers themselves? Last month in Forecourt Trader, Shaws Petroleum managing director, Paul Sykes, said he’d registered volume drops of between 15% and 19% at his sites against the same period last year. So we thought we’d look at our own Database figures and see whether the picture was as bleak as his experience suggested.
Unfortunately our own figures mirror Paul’s and in some ways are even more gloomy.
Starting with the simple bit - fuel volume - we looked at January 2008 through June 2008 (inclusive) and compared it with the same period in 2007. Overall in the first half of this year volumes were down 10.9% on the first half of last year. On our ’average’ site that meant a drop from around 419,000 litres to 374,000 litres per month. As if that wasn’t bad enough, when we looked just at the second quarter the drop was even more pronounced - 19.6%, or down from 422,000 litres a month to 339,000 litres.
So if volumes are down, what about shop sales - after all isn’t that where petrol retailers are supposed to really make their money? Well at first glance the story doesn’t look too bad. If you compare the first half of this year with the first half of 2007, you find that shop sales are up by 3.2% from £57,700 a month to £59,600. But if you look at the second quarter of 2008 versus the same period last year, the picture is rather different. There’s a drop of 4%, from £60,000 per month down to £57,500. And then it gets even worse.
And that’s because of inflation. According to the government’s preferred measure of general price inflation (the Consumer Price Index or CPI), the official inflation rate for July 2008 was 4.4%. Traditionally on these pages we have used the Retail Prices Index (RPI) - partly for the sake of consistency, since this column pre-dates the introduction of the CPI by some years. The latest RPI (for July 2008) shows inflation running at 5% and over the first half of this year, it averaged 4.1%.
So let’s look again at those shop sales figures while attempting to strip out the effect of general price inflation. By adjusting the raw sales figures to ’real’ prices (in this case we simply adjusted everything to its value in December 2006), we find that ’real’ shop sales dropped by 0.8% in the first half of 2008 from around £57,100 per month to £56,700. Apply the same formula to the second quarter of 2008 and it looks simply horrible - a drop of 8% in real terms from £58,900 to £54,170 per month. And as we’ve pointed out before, the actual rate of inflation in a forecourt shop is probably higher than either the CPI or RPI measures show, which means that real shop sales on the forecourt have most likely fallen even more than our adjusted figures suggest.
Basically our figures confirm the individual reports from last month’s Forecourt Trader, and then some. By all means let’s all take whatever relief we can find from the recent drop in prices, but don’t expect it to last too long. Even without any major geo-political upheaval in those parts of the world where oil is produced or transported, the price of oil will almost certainly start to rise again in the autumn.