Do Red Diesel Users Benefit from Low Global Oil Prices?
Alongside Brexit, another topic that has perpetually been making headlines for months, if not years, is the return of low oil prices after over a decade of historically unprecedented highs. The price of oil per barrel as measured by the Brent crude standard reached a high of over $120 in early 2012, and remained around a steady $110 per barrel until the middle of 2014, when the price swiftly dropped to $50 a barrel by the end of 2014. Oil prices have fluctuated between $60 and $30 since then, reaching $45 per barrel recently.
The cost of crude oil is one of the many factors affecting the cost of refined fuels, but it isn’t the only factor. Other market forces are at play, including seasonal demand and taxes, alongside global issues such as war and instability. So to what extent should red diesel, or gasoil, users, from farmers to pleasure boaters and yachters, expect to benefit from the falling oil price described above?
The value of red diesel remained steadily between 65 pence and 75 pence per litre in recent years until mid-2014, when the crude price declined drastically due to over-supply from America’s hydraulic fracturing oil boom. By February 2015, the gasoil price reached below 50 pence per litre, and plumbed a new low of 37 pence per litre in January 2016. Compared to road diesel, these price drops are stunning, but easily explained. The majority of the price of road diesel and petrol is fuel duty and VAT levied by the government. Retailers make only five pence profit per litre.
Farmers, the primary users of rebated diesel, stand to benefit significantly. Fuel expenditure constitutes between 5 and 10 per cent of total costs for farmers, and with prices only just falling after around 15 years of historic highs, overall annual expenditure could fall by two per cent. These savings aren’t massive, but the low price will also have knock-on effects, reducing the transport costs of feed, seed and fertiliser. Feed alone constitutes 50 per cent of expenditure in the livestock farming industry, representing significant potential savings.
Are you up to scratch with the legal uses of rebated diesel at home and abroad? Have a look at the other informative articles in our blog, and don’t hesitate to get in touch if you have any questions.