Fuel for thought

PETROL and diesel prices are on the rise, with prices as high as £1.05 a litre in York.

This affects transport costs, and could also pose problems for businesses, which may pass on the cost to their customers.

But are we facing a long-term problem that will cause major financial difficulties, or could petrol prices fall once the international situation eases?

The Petrol Retailers' Association said it believed the average price of diesel would reach £1 a litre by the summer, and the average price of unleaded petrol may be nearly as high.

Director Ray Holloway said: "The national average for a litre of unleaded is about 94p, but the cost of a barrel of crude oil, which has reached $72, is not likely to come down for some time.

"It does not mean we are going to see higher prices at the pump tomorrow, but by mid-May I think there will be more rises in petrol prices."

Service stations across York and North Yorkshire were this week raising their prices by 1p and 2p due to increasing costs from fuel providers - and the cost at the pump ranges from about 92p a litre to more than £1.

Continued uncertainty about the future production of oil could make it a long hot summer.

The hike in fuel prices last September, when supplies were affected by Hurricane Katrina in the United States, came at a time of year when oil costs traditionally fall.

"In reality, the price of crude oil never really came down," said Mr Holloway. "And this time of year demand of oil is ramping up because we are coming into the American holiday season and so prices are likely to continue rising over the summer."

International events creating uncertainty over oil include fears of a conflict between the USA and Iran - the world's fourth largest exporter - as well as tense political situations in Nigeria, Venezuela and Iraq.

"There are problems that are going to be around for some time," said Mr Holloway. "And part of the problem is that when oil prices are increasing financial institutions also invest in stocks, which pushes the prices still higher.

"But I hope that eventually some of the uncertainty will end and we may see prices starting to fall by September."

There are fears of problems across North Yorkshire as public transport providers, taxis, haulage businesses and the farming industry all feel the effect of higher prices.

Anne McIntosh, Conservative MP for the Vale of York and Shadow Minister for Work and Pensions, said: "It will particularly hit those on fixed incomes, such as old people and single parents, as well anybody doing deliveries.

"I have a sneaking suspicion that when the Chancellor did not increase the duty on fuel, petrol companies were quick to put up their prices. If the situation goes on for a substantial period of time I would urge the Chancellor to reduce the duty on fuel."

Taxi companies and road haulage firms were trying to absorb the extra cost to avoid regular price rises which would anger customers.

David Rhodes, chairman of Streamline taxis in York, said: "Taxi firms normally put up their prices at the beginning of the financial year to take into account rising fuel costs.

"But we can't keep reacting to short-term increases because customers notice the increase in fares and just stop using us. So we hold off, shop around for the cheapest fuel, and wait until the next annual increase."

Roy Handley, owner of A1 Plant and Haulage of Elvington, said transport companies found it difficult to pass on the cost to customers for fear of losing trade.

Selby MP John Grogan raised fears for public transport in some villages as bus companies pulled out of less profitable services as rising fuel costs made them no longer viable.

"This is a genuine problem in some areas, where people are already struggling to pay for their car and public transport is becoming less available," he said.

"The Chancellor avoided raising duty on fuel in the last budget and I think it is likely this will be extended at the next one."

York MP Hugh Bayley said: "Some green campaigners say there should always been an increase on fuel tax to reduce the use of private transport and cut emissions.

"The Chancellor has already taken steps to address this by cutting the vehicle excise duty on the smallest cars and raising it on those cars which are the least fuel efficient.

"But the duty was not raised on fuel because the motorist is already paying more at the pump."

Gerry Gray, independent financial adviser for Grosvenor Financial Consultants in York, looks at the economic angle.

"FUEL price rises are caused by what is happening in the world. Worries of this kind often put up the price of crude oil, but then these concerns subside.

Already the cost of fuel is causing people to think about their journeys, and whether they are necessary, so I think consumption will go down.

Europe is going into the summer season and the need for heating will go down, so the amount of crude oil we use will also fall. That should take the pressure off the price of oil.

Overall this situation with the price of oil is probably temporary.

Most people have cars or use transport to get about. Every time the price of oil goes up it acts like a tax. It takes out of the economy spending power that people could use for other purposes. This slows the economy. This can be inflationary and put up costs.

As the economy slows, the Bank of England may reduce interest rates to keep the economy steady.

The Chinese and Indians, who hold the biggest cash reserves in the world, put their cash where they get the best return.

America is always the number one choice because so many things are easily available in the dollar.

We are second choice and, if we reduce interest rates further, a lot of money will move out of sterling into the dollar.

The pound would fall in value and this causes a bigger problem in exporting to other countries.

The Bank of England faces a difficult decision - cut interest rates to strengthen the economy, leave them as they are, or put them up to defend the pound.

Personally, I think they will hold on for two or three months to see how things bed down, then lower interest rates, and if there is a run on the pound, put them up again."

How the price hikes will hit your holiday

THE price of a holiday is also rising as airlines face ever-escalating fuel costs.

British Airways this week raised its fuel surcharge on long haul flights to £35 per person.

Fuel levies were introduced two years ago, when BA charged only £2.50 per passenger on long-haul and short-haul flights.

Since then, the surcharge has been raised seven times and now stands at £70 per person for a return trip on a long-haul flight, and £16 for a return trip for a short flight.

Sean Tipton, spokesman for the Association of British Travel Agents, said fuel prices were affecting all holiday providers, although some companies built the increase into the general bill, while others called it a separate charge.

"If it is a surcharge, it may not be in the original holiday quote, but will be added at the stage when other taxes are added," he said. "But it will be stated before the customer hands over their money."

Even budget airlines such as easyJet and Ryanair are affected by higher fuel costs and can either raise their prices, or add a surcharge.

Families across York and North Yorkshire are already noticing the increased cost of booking their annual holiday.

Michelle Creaser, manager at Ryedale Travel, which has several branches in the area, said: "The amount people are paying depends on the tour operators and ranges from £10 up to £50 per person, so that is a big cost if you are booking a family holiday.

"Sometimes it is broken down so people can see what the surcharge is for and customers are just accepting it. It is hard when they are already paying a flight supplement for a local airport, but it can't be avoided."

Susan Young, manager at Holiday Arcade in Selby, said: "Some tour operators have their own airlines and so are ultimately responsible for setting their own surcharges.

"But others use charter flights or scheduled flights with other companies and so have to accept what surcharge is passed on to them."

Updated: 10:21 Thursday, April 20, 2006