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Fuel-price misery as oil hits record high and 1 litre edges ever nearer


Key quote "The Iran issue is the driver of the day, the extra factor causing the run-up in prices, but the basic thing underlying the industry is that global demand remains very strong." - Tobin Gorey, Commonwealth Bank of Australia

Story in full
SCOTS are facing a summer of travel misery with prices at the pumps predicted to reach 1 a litre in the next few months and airlines announcing new fuel surcharges on holiday flights.

As the cost of oil reached a new high, with Brent crude hitting $72.20 a barrel, retailers yesterday predicted average diesel prices would top 1 in the summer while petrol would come "very close".

The record oil price coincided with BA becoming the latest airline to announce yet another fuel surcharge increase on return long-haul flights.

The previous oil price record of $70.85 a barrel came last August, after Hurricane Katrina lashed the United States Gulf coast and wreaked havoc on the region's oil industry.

The devastation helped push the average cost of unleaded petrol to 96.6p a litre in September and diesel to 98p.

However, Ray Holloway, the director of the Petrol Retailers' Association, said those prices were "in danger of being broken" this summer if the cost of oil remained high and demand for fuel continued to rise in the US for the summer driving season, which is just starting.

He said: "Diesel was 98p a litre and I think it will break 1. I don't think petrol will, although it will get very close to it."

The AA Motoring Trust said the average price of a litre of unleaded had gone up by 1p a week for the last three weeks, to 94.4p a litre on Monday, while diesel reached an average of more than 97.6p a litre.

Oil prices have soared by more than $10 a barrel over the last four weeks and analysts believe they could rise further. The latest increase came amid growing fears of military action against Iran, which said it plans to enrich uranium despite warnings from the US, Europe and the United Nations.

The rise was also driven by the disruption of crude supplies in Nigeria, where more than 500,000 barrels a day of production has been lost due to militant violence.

In addition, in the Gulf of Mexico, more than 300,000 barrels a day remain off the market after last year's hurricanes.

BA announced the sixth increase in fuel surcharge since its introduction nearly two years ago. The charge will rise by 10 to 70 per return long-haul, but remain at 16 for return short-haul trips.

Last week, KLM increased its surcharge by nearly 7 to 62 per return long-haul flight and American Airlines' and Delta's went up by more than 10 to 74.Ryanair said yesterday it would continue to guarantee no fuel surcharges.

Oil traders believe further crude price increases are likely in the long term due to the booming demand in emerging economies such as China and India at a time when supplies are becoming tighter.

Tobin Gorey, a commodities strategist at the Commonwealth Bank of Australia, said: "The Iran issue is the driver of the day, the extra factor causing the run-up in prices, but the basic thing underlying the industry is that global demand remains very strong."

However, Luke Bosdet, of the AA Motoring Trust, said a similar spike in oil prices in January and February had little impact on petrol. He said the latest surge would only send prices at the pumps higher if it was sustained.

He said: "The real problem is how long the oil price hike lasts not how high it goes."

Duncan McLaren, the chief executive of Friends of the Earth Scotland, said the price rises should spur swifter government action to cut fuel use. "If they really understood the problem, ministers would be falling over themselves to reduce our addiction to oil by encouraging greater fuel efficiency, reducing the need to travel and supporting greater investment in better public transport."

France seeks action
FRANCE will call for a rise in oil output at this weekend's G8 meeting in Washington in an effort to tame speculative price swings, Thierry Breton, its finance minister, said yesterday.

"I am pleading within the G8 ... I got a mandate with my British counterpart, Gordon Brown, to approach producer countries so that [production] is raised in a normal way, so that we have a little buffer to limit speculative effects," Mr Breton said.

The G8 club comprises the United States, Canada, Japan, Germany, Britain, Italy and France and Russia.

Mr Breton ruled out cutting the tax the French government takes on petrol.

"But I do not exclude bringing together oil operators again," said Mr Breton, who once mentioned the idea of taxing oil firms' profits.

Expert opinion

Halter Marek


Halter Marek
Le College de France
Olivier Giscard dEstaing


Olivier Giscard dEstaing
COPAM, France
Mika Ohbayashi


Mika Ohbayashi
Institute for Sustainable Energy Poliy
Bill Pace


Bill Pace
World Federalist Movement - Institute for Global Policy
Peter I. Hajnal


Peter I. Hajnal
Toronto University, G8 Research Group

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