Petrol prices are a topic we often find ourselves discussing. The cost of that 200-mile Sunday ride to drink tea and eat cake has increased significantly over the past year.
Like most, we just thought we were getting ripped off by money-grabbing big business. In a desire to work out who it is that has their hand in my wallet, we compared the difference between oil and petrol prices in October 2021 to those in October 2022.
We are not economists, nor did we spend hours considering every possible variation. Nonetheless, here are our maths.
Barrels of Oil
The price of a litre of petrol at the pumps is based on the cost of a barrel of crude oil.
There are several sources of crude oil, but as they are traded on the global market, the price difference for each source averages out to the same cost. Prices for barrels of oil are quoted in US Dollars.
The exchange rate between the currency we buy petrol in (at the pump) and the cost of a barrel of oil is key because we have to buy the oil in dollars.
Even if a global oil company buys oil in dollars, when we buy petrol from them, we have to pay the oil company in our local currency, and if that isn’t worth what it once was, the price of petrol goes up.
As I write this (October 2022), a barrel of oil is $5 cheaper than it was in October 2021, yet petrol is 21 pence per litre more expensive. Here comes the maths part …
Petrol Prices
In October 2021, according to the RAC Foundation, the cost of a litre of petrol in the UK averaged £1.44. Meanwhile, the price of a barrel of West Texas Intermediate crude oil was $89.67, and one British Pound would buy you $1.37 US Dollars.
Fast forward to October 2022, and a litre of petrol costs £1.65 (average) at the pump. That same barrel of oil has dropped in price to $84.92, and one British Pound will buy you $1.13 US Dollars.
Although the US Dollar price for the barrel of oil has dropped, when we pay for it in British Pounds, the cost has gone up.
October 2021 – $89.67 converts to £65 (rounded). In October 2022, $84.92 converts to £75 (rounded). A net increase of 15% for the same barrel of oil – £65 plus 15% = £74.75
Apply the same percentage increase to the petrol price at the pump, and the £1.44 we were paying in October 2021, becomes the £1.69 we are paying today. (£1.44 plus 15% = £1.69).
For the price of the Sunday cake hunt to reduce, and assuming the price of a barrel of oil stays roughly the same, we need the exchange rate with the US Dollar to improve.
A Few Final Questions
As oil is traded in US Dollars, why are Americans having the same problem with petrol prices that we are? As I mentioned at the start of this article, we are not economists, so we have no idea.
Closer to home, in October 2021, the price of a litre of diesel was £1.47. Add the 15% increase to that price, and I get £1.69, not the £1.89 my local petrol station is asking.
Clarity & Sources
We write about motorcycles and petrol goes into a motorcycle. That is where, for us, the conversation ends. We don’t do and are not interested in politics.
We rounded some of the figures for simplicity. The sources we used in writing this article are:
Crude Oil Prices – 70 Year Historical Chart | MacroTrends
