Petrol may soon cost £5 per gallon

By MoneyhighStreet Staff. Published on April 16, 2007 This post currently has one comment.

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Petrol prices are going up and could even hit £1 per litre (£4.55 per gallon) in the coming months. How long will it be before petrol costs £5 per gallon? We investigate in this article.

Contrary to our expectations that petrol prices would fall once the naval captives were freed by Iran, fuel prices seem to have held their level at around 90p per litre. Tensions with Iran have reduced, now that the captives are free, however middle east problems and the Iranian nuclear programme still force oil prices upwards, meaning more expensive petrol and diesel for motorists.

It is not just political unease that is keeping oil prices high. Soaring demand for oil, particularly in rapidly developing countries such as China and India, is being met with a reduction in supply by the OPEC countries, which has fallen to its lowest level for two years. These oil rich countries seem to be constraining supply to drive the price of oil upwards.

The national average cost of unleaded is currently around 92p per litre and diesel a more expensive 94p per per litre. We have already experienced diesel prices at around 99p when tensions in Iraq last summer forced oil prices to record highs.

OPEC is forcing oil prices up and a barrel of Brent crude will rise to more than $70 in May. Petrol and diesel prices are likely increase as a result, probably to £1 per litre in some areas.

Taxes and more taxes

So there is a worldwide trend for increasing oil prices, but lets not forget the impact of taxes on what we pay at the forecourt. The Government takes about seventy percent of fuel costs as tax, and the Chancellor has already factored in additional tax raises in October and then April 2008.

The 2p tax rise in October is likely to force fuel prices to break through the £1 per litre threshold. Further increases in fuel tax in April will then drive fuel prices up by another 2p per litre, probably to the £1.04 per litre level.

Further heightening of tensions in the Middle East, which are likely given the instabilities in Iraq and Iran, will cause worldwide increases in oil prices, which will then add further to the cost of petrol and diesel. A small increase in oil prices could easily drive the cost of petrol up to £1.10 per litre, or £5 per gallon.

£5 per gallon will become a reality

As we've seen, a combination of oil price rises through political instabilities in the middle east, constraining oil supplies by OPEC, increased demand for oil and increases in taxation, make the £5 per gallon cost of petrol a distinct possibility.

Petrol will probably cost £5 per gallon this time next year. So what can we do about it?

Sadly there is little that we can do. We can hope that the Chancellor withdraws his two planned tax increases, but this is highly unlikely. We can plan our journeys to use less fuel and maybe downsize to more fuel efficient cars. We could also considering either buying a car that uses LPG or converting our current car to use this fuel.

As petrol and diesel prices increase, converting to LPG and other green fuels, becomes a more attractive option, however we probably just have to face the fact that petrol will soon cost £5 per gallon and will become even more expensive in years to come.

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