Thinking things through...

You’ve probably seen this before, it’s dropped into my inbox from a couple of different sources over the last few days:

“We are hitting 12 9.9 a litre in some areas now, soon we will be faced with paying 2.00 a ltr.

All You have to do is send this to 10 people. That's all.(and not buy at ESSO/BP) How long would all that take? If each of us sends this email out to ten more people within one day of receipt, all 300 MILLION people could conceivably be contacted within the next 8days!!! Acting together we can make a difference If this makes sense to you, please pass this message on.

Now that the oil companies and the OPEC nations have conditioned us to think that the cost of a litre is CHEAP, we need to take aggressive action to teach them that BUYERS control the market place
not sellers. With the price of petrol going up more each day, we consumers need to take action. The only way we are going to see the price of petrol come down is if we hit someone in the pocket by not
purchasing their Petrol! And we can do that WITHOUT hurting ourselves. Here's the idea:

For the rest of this year DON'T purchase ANY petrol from the two biggest oil companies (which now are one), ESSO and BP.

If they are not selling any petrol, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit. But to have an impact we need to reach literally millions of Esso and BP petrol buyers. It's really simple to do!!

I am sending this note to a lot of people. If each of you send it to at least ten more (30 x 10 = 300)... and those 300 send it to at least ten more (300 x 10 = 3,000) ... and so on, by the time the
message reaches the sixth generation of people, we will have reached over THREE MILLION consumers! If those three million get excited and pass this on to ten friends each, then 30 million people will have been contacted! If it goes one level further, you guessed it... ..

THREE HUNDRED MILLION PEOPLE!!!

Again, all You have to do is send this to 10 people. That's all.(and not buy at ESSO/BP) How long would all that take? If each of us sends this email out to ten more people within one day of receipt,
all 300 MILLION people could conceivably be contacted within the next 8days!!! Acting together we can make a difference If this makes sense to you, please pass this message on.

PLEASE HOLD OUT UNTIL THEY LOWER THEIR PRICES TO THE 69p a LITRE RANGE

It's easy to make this happen. Just forward this email, and buy your petrol at Shell, Asda,Tesco, Sainsburys, Morrisons Jet etc. i.e. boycott BP and Esso.”

Yawn.

Do you know what? Chain emails really annoy me. This one does, however, expose an interesting human characteristic.

Before I get to that, though, a brief discussion as to why this is, of course, rubbish.

Firstly, whoever’s written this has gone to great lengths to describe the mathematical process as to how their campaign will reach 300 million people and seems to have forgotten that the UK’s population is currently only 60.7 million and that includes quite a few people under seventeen, those who can’t drive, those who don’t own a car, and probably quite a few who are simply rich enough not to care. Sending it to so many seems a little pointless.

BP and Esso have a virtual monopoly on petrol stations at motorway service stations. Not entirely, but the vast majority of filling up points on the major routes belong to ‘the big two’ - which, you know, is why they’re the market leaders (curious how Shell, who also had a very successful first quarter are excluded from this). This’d make going on holiday, driving any sort of long distance, or doing the sort of job I used to do very difficult. It would involve significantly more planning to find out where alternative petrol stations are based and anticipating when you would need to refuel on the journey. Possible, certainly, but time consuming and irritating. Let’s face it, no-one would bother.

Okay, so BP made a $7.6 billion profit for the first quarter in 2008, up 45% on the same time last year, but this revenue is generated by the exploration and production side of the business, not selling it to motorists on the forecourt. In fact, BP is effectively split into two. The production side of the business has to sell the oil to the retail side and it is illegal to for them to set their own price for a barrel of oil. They have to follow OPEC‘s rates.

(Interestingly, this means that when the cost of a barrel of oil is low, as it was recently, the retail side of the business supports the exploration and production.)

Not buying from Esso or BP forecourts isn’t actually going to harm the profit margins of the two companies significantly. Why? Well, Morrisons, Sainsburys, Tescos, etc, are retails businesses. They don’t have a refinery. In fact, I’m ninety percent certain I read somewhere that Tesco buys its oil from Esso - from the part of the business that’s already making a profit.

So, bypassing Esso and BP is not likely to reduce the cost of petrol to 69p a litre. The most likely outcome is that Esso and BP will close petrol stations down and with less competition prices will rise elsewhere.

Don’t forget that the current tax-rate is also 50.35p per litre of petrol. Which would mean, if the email’s aims of reducing petrol cost to 69p a litre, just less than 19p going to the retailer. I doubt there’s any sort of profit margin in this.

(I’m slowly getting to the point).

What can be done about the cost of petrol?

I haven’t a clue, but here’s a couple of alternative solutions:

Governments can bear down on OPEC and try and force a reduction, but understandably won’t.

The government could reduce the tax rate on petrol, but taxes are generally a good thing. They pay for the NHS, for schools, for unemployment benefits, the maintenance of highways - no good having cheap fuel if the roads collapse. (And okay, they also pay for immoral wars in the middle-east, but with a national debt of somewhere around £500 billion, according to an article I found on the Daily Telegraph’s website, don’t expect any cuts in any taxation soon.)

Here’s one solution. BP has to generate a profit because it has shareholders. Its shareholders are extremely happy with these record profits. If, however, there wasn’t such a need, if it was content to break even for a while or make a smaller profit of say, half a billion a year, then it could reinvest the money into the forecourts side of the business and take a loss on petrol sold to the motorist in the short-term whilst prices increase more steadily. They’re never going to do this, and why should they? The purpose of BP is to make money; it does not have a moral obligation to the public.

Of course we could always renationalise the company and then it would be able to consider prices from a moral rather than a business perspective, but a) that’d probably result in job losses at the competition as they make cuts to cover for lower profit margins at the pump and b) I think I hear the socialist bell ringing which means it’s time to stop.

Here’s a vaguely interesting fact: According to the AA’s website the average price of petrol in 1974 was 16.26p a litre and according to the Liberal Parties manifesto of the same year the average wage was £2,106. This makes twenty litres of petrol about 8% of a weekly wage. Apply this to 2007 figures, £1.17 a litre and an average salary of £22,000, and it’s 5.5%. Proportionately the cost of motoring is going down, so should we be demanding cheaper petrol at all?

Anyway, this is all kind of by-the-by (and I’m clearly putting off doing something else), but what really struck me about the email was the price they wanted to reduce petrol to.

69p a litre.

I’ve been driving and buying petrol for twelve years now and, feel free to correct me, but I think the 69p mark was around 1999-2000. Nearly a decade ago.

I started thinking about other things that have gone up significantly in prices over the same period. Beer, for example. When I lived in Sheffield you could get a round of three drinks for under a fiver, so about £1.50-£1.60 a pint. In the Brockley Jack at the moment the prices range from £2.25 for an IPA to £3.40 for a Peroni. Which is cheap by London standards. In the Honor Oak Tavern Black Sheep goes for £3.20 a pint, the same as a pint of Landlord in Jam Circus. Outside of London it’s more or less the same. I went in the Waterman, in Warwickshire, recently and, I think, it was pushing the £3 mark for a pint.

Bread. Apparently the average cost of a Hovis loaf is £1.15, ten years ago it was 65p. (But I make my own, so what do I know?) Free-range eggs are £1.75 for half a dozen, up from 79p. Pasta. Most fruit and vegetables. Okay, so sausages plummeted to under a pound a pack at Asda recently, but everyone knows that’s a PR stunt.

(Call me crazy, but in doomsday scenarios I’m more worried about people starving to death than not being able to drive around.)

Let’s not even get into gas and electricity.

You can see where I’m going with this. Everything has gone up in cost. That’s how it works. Certain things are rising out of proportion with wage inflation, which is why people are starting to find the cost of living difficult.

So, presumably whoever came up with the plan to force the cost of petrol down would like this to apply to everything else deemed to have risen in cost too much, too fast.

Including, no doubt, the value of his house.

Welcome to the recession. I hope you enjoy your stay.


(UK average house price up from £84,000 in 1999 to £229,000 at the end of 2007; a 272% increase versus 169% for petrol.)