Mike Waters' Blog: 22 August 2007

Date: 29 August 2007

Mike Waters is senior insight & consultancy manager at Arval, the leading vehicle leasing and fleet management company.

The news this week of Hurricane Dean moving through the Gulf of Mexico will have been watched by people across the world, not least by those working in oil firms whose interests in the region are significant. While discussion of course focuses on the immediate impact of any large hurricane, those working in the automotive industry will know that severe weather conditions in the Mexican Gulf can impact oil and fuel prices.

Much has been made of fuel prices in recent months as petrol and diesel costs have slowly increased, converging at around a 96p to 97p average. Oil prices, a major influence on forecourt costs, have risen by over 20% this year and with fuel prices now hovering at just under the £1 mark, I fear that any further increase in oil price could see the £1-a-litre threshold broken. Hurricanes present one such risk to oil prices and with the official hurricane season continuing until 30 November, it is far from certain what will happen to prices this year. In mitigation it is also unclear how the recent concerns over US mortgage lending and the knock impact on equity markets will impact oil prices, this could certainly offer some respite over coming weeks.

So what does all this mean for business car drivers? It's not rocket science - keeping a close on eye fuel costs must continue to be an important part of operating a fleet and in making sure running costs don't significantly increase. Many businesses have made savings from directing their drivers to more cost-effective forecourts and monitoring fuel consumption and costs using fuel cards. This could become increasingly crucial if prices escalate further and operating costs increase as a result.

The looming threat of £1-a-litre fuel seems to be acting as an incentive to businesses who are keen to keep an eye on the creeping costs. This is encouraging, but my advice is not to get complacent should prices breech the £1 threshold. If the price goes over it's as if a psychological barrier is broken - it's the same between something costing £4.99 or £5.00 in a shop. Yes, it's only a few pence difference, but once the barrier is broken there could be a tendency in businesses to stop keeping such a close check on prices. This could be particularly risky as once prices go over £1-a-litre it might make it more palatable for Government to raise fuel duty. Subsequent increases to £1.05 or even £1.10 won't feel like much of a difference, but could have a huge impact on operating costs. We saw the same trends when prices per gallon reached £2 and £3.

Don't let yourself get caught out. Whether prices rise or fall, make sure you're keeping a check on what price you're paying at the forecourt.

Until next week,

Mike

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