A post on Facebook shares a table showing the price of crude oil compared to the price of fuel at the pump in the UK, claiming the “pump price is not connected to crude price”.
However, there’s one big issue with the figures in the table, which makes it misleading. The price of crude oil has been adjusted for inflation, but the price of fuel at the pump has not. This makes it look as though the price of crude oil has not risen as much as it really has.
In fact, during this period, the price of fuel has tracked the price of oil fairly closely.
What does the table say?
We’ve not been able to find a source for the figures in the table.
Some of the fuel figures are quite far off the mark. For example, the table lists the price of fuel in October 1999 at 61.9p per litre, while government data shows the average price was between 73.9p and 83.9p, depending on the type of fuel purchased.
Some of the crude oil figures are significantly wrong. For example, the table claims the price of crude oil in April 1986 was $82.96, when a barrel of crude oil was actually around $35 adjusted for inflation, or $13 dollars in 1986 prices.
However, these errors aside, most of the prices listed broadly reflect changes in the inflation-adjusted crude oil and non-adjusted petrol prices.
For example, the table claims the price of crude oil in May 1980 was $132.21 and the price of a litre of fuel was 36.7p.
We’ve not been able to find figures for the fuel price in May 1980, but in April 1980 petrol was £1.32 a gallon, or about 29p per litre, in non-adjusted terms. This suggests that the figure in the table is not adjusted for inflation, because 29p in 1980 is much closer to 36.7p than what 36.7p in 1980 would be worth in today’s money (approximately around £1.30-£1.40).
Meanwhile, the price of a barrel of crude oil was $39.50 in non-adjusted terms in May 1980, or around $137 in inflation-adjusted terms. This is close to the $132 quoted and suggests the figure in the table for crude oil is adjusted for inflation. Crude oil is traded in dollars which is why it often isn’t converted into local currencies.
Inflation measures the change in prices, which tend to increase over time. Adjusting for inflation puts the value of items in the past into present money to make it easier to compare whether prices are changing over time.
But comparing one inflation-adjusted figure (in this case crude oil prices) with a non-adjusted figure (in this case fuel prices) is inappropriate and makes it look like fuel prices have increased steadily, while crude prices haven’t.
To accurately compare the price trends of crude oil and fuel, both need to be presented as inflation-adjusted or unadjusted. Both also need to be converted into the same currency, as the relationship between the two prices (domestic fuel sales transactions which happen in pounds, and crude oil transactions which happen in dollars) is affected by fluctuating exchange rates.
Relationship between crude oil and fuel prices
Plotting the unadjusted price of crude oil against fuel shows a weak relationship. When crude oil goes up so does fuel, but to a much lesser extent.
This is partly because the price of crude is not the only thing determining the price of petrol. Notably, tax makes up a significant portion of the pump price in the UK.
Because a large portion of tax is fixed duty (currently 57.95p per litre regardless of the price of fuel), this means that when oil prices are falling, fuel prices don’t fall as quickly in percentage terms. Similarly, when oil prices are rising, fuel prices don’t rise as quickly.
Once tax is taken out of the equation, the price of crude oil and the price of fuel are more closely related.
In these graphs, the price of oil and fuel in January 1996 (the earliest period for comparable monthly data from the government) is set to 100, and then the prices in future months set relative to that level.
This is called an indexed graph which shows the change in a figure over time, without being expressed in units.
For example, in January 1996, a litre of premium unleaded petrol, including tax, was 55.9p and by August 2008 it had doubled to 112.1p. This is represented in the graph by the petrol index doubling from 100 to 200. Indexing all the figures to 100 makes it easier to see how the price of oil and the price of fuel track each other, than if both were presented in cash terms because the cash value of a barrel of oil is much higher than a litre of fuel.
The RAC says: “Generally speaking, higher oil prices lead to higher petrol and diesel prices at UK forecourts – and in theory at least, lower oil prices should lead to cheaper pump prices.”
It adds: “Before 2020, the RAC believed retailers had a reasonable record of passing on reductions in the wholesale price of fuel to motorists at the pump, but there were occasions where we thought this could be carried out more quickly.
“For instance, retailers often seem to take more encouraging to reduce their prices when oil prices are falling than they do when oil goes the other way.”