COUNTING THE COST AS IRAQ WAR HITS PUMPS

<a href=www.thisisexeter.co.uk>Express 7 Echo 12:00 - 04 April 2003

There's a perception that Devon has some of the most expensive petrol prices in the country and uncertainty about how the Iraq conflict would affect oil supplies saw pennies regularly being added to the price of a litre of petrol over the winter. Rob Sims discovers if we are getting a raw deal Fears that a long and bitter conflict in Iraq could interrupt the smooth supply of oil has contributed to a steep rise in the cost of fuel at the pumps in recent months. Rises of up to three pence a litre have led to the growing suspicion that while petrol companies are quick to increase prices during times of crisis, there is always less haste to lower them again. Devon - which was at the centre of nationwide protests about the price of fuel in September 2000 - is particularly vulnerable to rising prices. The rural economy is dependent on the car and parts of Devon pay some of the highest prices in the country. Recent research from the Devon and Cornwall Business Council revealed that prices could vary by as much as seven pence a litre at urban and rural garages owned by the same companies. In some more remote areas motorists are paying more for their fuel than at any time since the fuel protests, with a litre of unleaded petrol priced at more than 80 pence. The cost of a barrel of oil has fluctuated widely in recent weeks and fears over a long conflict in Iraq led to prices creeping up. Its wasn't the only factor. At the end of last year crude oil shortages caused by a general strike by workers in Venezuela caused prices to soar. Pump prices rose by 2.5 per cent in the month before the Iraqi conflict began, hitting a two-year high of 80p for a litre of unleaded fuel. At the start of the current conflict the Petrol Retailers Association (PRA) predicted a rise in the cost at the pumps followed by a gradual fall. Once military action was launched and the conflict looked like it would come to a swift end, it said prices would drop rapidly. Now that the bid to remove Saddam looks like it may be more protracted, the situation is less clear. Ray Holloway, director of the PRA said: "In the coming weeks the price of crude will be going up and down like a yo-yo. "Prices are now beginning to come down and I think they will come down more the closer we get to Easter. "BP announced a penny cut last week and I expected the others to follow. I have begun to notice the pennies coming off. I think we have already seen the effects of the war, which pushed up prices between December and the end of February. "Although the Iraq conflict will keep the cost of crude high, other factors, like seasonal demand, will help to keep prices down. "People always say that prices go up quickly when there are rises in crude oil but are slow to come down again when prices fall. But there isn't really much of a lag." Mr Holloway denied claims that prices were higher in Devon than elsewhere and said rural areas shouldn't have to charge more than urban locations. The price of fuel fluctuates because oil is a commodity traded on international stock markets and its price is affected by confidence over supply. Anything that could affect the smooth supply of oil - especially conflict in a major oil-producing country like Iraq - means motorists are likely to take a hit at the pumps. Dr Simon James, a lecturer at Exeter University's economics department, said motorists shouldn't panic about the current crisis - as long as it doesn't last for too long. He said: "In the longer term there is not too much to worry about because the cartels have never been able to keep oil prices high for long - there are too many countries producing oil for that. "As long as the conflict is confined to Iraq and doesn't spread to countries like Saudi Arabia, there is no reason for prices to stay high for long. A lot of short-term rises in the cost of petrol are based on speculation - that is quite normal. "If you think that the wheat crop is going to fail then the price of wheat will rise well before it actually does. "Motorists are not allowed to stockpile fuel; they have little choice but to pay the prices at the pumps. There is plenty of oil in containers around the world that could be used if the need is there. "I don't think motorists really have much of a cause for concern at the moment." Tim Jones, chairman of the Devon and Cornwall Business Council, accuses the big petrol companies of exploiting local motorists. Mr Jones said: ""Rural areas get a bad deal. The same petrol companies continue to charge four pence a litre more within a 30 mile radius. "In particular, the major petrol companies are exploiting main road sites, where people have no choice but to buy petrol from them. The tourism season is about to start and we need to show that we can offer fuel at reasonable prices, especially as train services are poor." The business leader said fears of big price rises following the start of hostilities had so far proved unfounded. He said: "They have managed to take control of some of the big oil wells in the south so supply is no longer a problem. "Things should be looking quite rosy, but that is not always reflected at the pumps. "There should be a downward spiral in prices now. "If the supermarkets can maintain prices throughout all their stores, I don't see why petrol companies can't. "Not only are rural businesses and households paying dearly for their petrol anyway, but they do not have a choice - for the majority of people in rural areas there is no train and no bus unless you want to wait for a day. The whole of the rural economy is totally dependent on cars." A spokeswoman for BP said the company considered a whole range of criteria before setting the price of its fuel. She said: "Oil prices have been fluctuating a lot in recent weeks. "It is something we look at on a daily basis so that prices reflect the current market." There is little alternative for motorists but to pay the prices that are fixed by the big companies. Last month the pumps at one of the last remaining independent petrol stations in Devon ran dry. The Harris Motors garage at Nomansland, near Tiverton, stopped selling fuel after owners Bev and Fred Harris - who ran the petrol station for 18 years - were unable to compete with supermarkets and oil firms. While Liquid Petroleum Gas (LPG) has yet to take off, the market for diesel is growing all the time. Two years ago diesels took 15 per cent of the new car market but the figure is now around 27 per cent and could reach 30 per cent by the end of the year. Some economists have predicted that conflicts in oil-producing countries could become more common in future years as precious resources begin to dwindle. The rate of new oil discoveries has slowed in recent years and, depending on who you listen to, production will begin to decline sometime between 2010 and 2025. Supplies are limited and lifestyles will have to change without the luxury of what is still, essentially, a cheap form of fuel. But for now, despite all the concerns about rising petrol costs, it remains a relatively cheap and plentiful fuel. And while many motorists will vent their frustrations at ever-changing prices, it is worth remembering that around 80 per cent of the cost of a litre of fuel in the UK is tax.