How Rising Oil Prices Impact Fuel Costs for Drivers

Motorists are feeling the pinch at the pumps this month, as both petrol and diesel prices are rising. While the month-on-month changes are relatively minor, they still add financial pressure especially for those commuting regularly and long-distance drivers.

Several factors are driving these price hikes including rising global oil costs, domestic tax policies, and the seasonal surge in summer travel. Electric Vehicle (EV) charging prices, however, remain stable, continuing to offer a reliable alternative.

Higher when the price of oil goes up it can directly increase the cost of producing electricity. And in Ireland, many power plants rely on oil and gas to generate electricity.

According to AA Ireland's figures, fuel prices in Ireland have been steadily climbing in recent months, with petrol costing €1.80 per litre and diesel costing €1.77 per litre during the months of February, March and April. A fuel price drop in May saw petrol down to an average of €1.76 per litre, down 4 cents, while diesel fell to an average of €1.68 per litre, down 9 cents. But this month saw increases creeping up again with petrol now costing an average of €1.77 per litre, up 1 cent since May and diesel has risen to an average of €1.69 per litre, up 1 cent month-on-month.

Wholesale oil prices have been fluctuating wildly in recent months, particularly in June when the Israel-Iran conflict broke out. Global benchmark Brent futures went from a high of $75.47 a barrel on April 2 to a four-year low of $58.40 on April 9. It saw another low on May 5 but since then Brent has been trending higher, reaching $70.40 a barrel on June 12, the day before Israel launched its bombing campaign against Iran. The Israeli attacks and the subsequent US bombings saw crude spike to a five-month high of $81.40 a barrel on June 23, before the risk premium evaporated with a ceasefire deal announced by US President Donald Trump.

Oil prices rose on Friday (June 27) though they were set for their steepest weekly decline since March 2023, as the absence of significant supply disruption from the Iran-Israel conflict saw any risk premium evaporate. The cost of petrol, diesel and home heating are increasing here as fuel retailers in Ireland are responding to international costs that are outside their control.

Industry group Fuels for Ireland, the representative body for the liquid fuels sector, is warning that recent increases are putting renewed pressure on households and businesses. CEO of Fuels for Ireland, Kevin McPartlan warns how fuel is taxed is a matter for national policy. \"When fuel prices go up, so does the State’s tax take automatically, that may be fiscally efficient, but it can be economically and socially regressive,\" said Mr McPartlan. \"This underlines the urgent need for a comprehensive review of how fuel for heating and transport is taxed.\"

There is a lag of about two weeks on crude prices when you see the trend where Brent goes up and down, and when the pump price is up and down. How is the price at the pump formed? The price of petrol and diesel is a combination of global and local factors. Crude oil is the main driver which is then influenced by costs such as refining and distribution, taxes, and retailer margins.

In Ireland fuel taxes include excise duty, carbon tax and VAT, this means if you take AA Ireland’s price for petrol in June of €1.77 per litre, then more than one euro is going to the government due to these levies. Brent crude prices are constantly shifting, when a refiner buys crude oil at a certain price on a certain day, they must refine it and transport it onwards. So as an input cost into the pump prices, there is a lag of about two weeks on crude prices when you see the trend where Brent goes up and down, and when the pump price is up and down.

Exchange rate fluctuations can also affect the price in local currencies as refined fuels are often sold in US dollars. Crude price two weeks ago at the start of the Israel Iran conflict were going up, and that impact is still being felt now. But wholesale prices have flattened again as the ceasefire is seeing prices decline and are expected to stabilise.

\"What you would hope and expect now is pump prices have begun to fall already and over the next couple of days that fall will continue as people get new deliveries in,\" said Mr McPartlin. \"They'll have bought at a lower wholesale price, and it seems to have levelled out, or there hasn’t been any dramatic change in the last 24 hours (Friday 27)\".

What is Brent crude? Brent crude is a specific type of light, sweet crude oil which can be easily refined into petrol and diesel. The price of Brent crude is a major benchmark for the purchase of oil worldwide, so it can influence the price of other crude oils and refined products worldwide. It is the benchmark used for the light oil market in Europe, Africa, and the Middle East.

Higher energy costs can make many goods more expensive across the world. Ireland imports 100% of its fuel needs and is therefore fully exposed to global markets.

What are can motorists expect for the coming months? It is impossible to say. No one could have predicted the US bombing Iran, the ensuing ceasefire, the doubts over the ceasefire and the wild excesses it would cause on wholesale prices. But traders always factor risk into the market, whenever there is any uncertainty the wholesale prices go up straight away.

Markets are reacting to risk, not just reality, with the speculative effect driving up prices, even in the absence of supply shortages. In Ireland even If all the storage tanks were completely full, they would hold around enough fuel for 10 days, but not all tanks are full at any one time. There is a reliance on ship deliveries and stocks are constantly running down.

\"It's never the case that people are sitting on high levels of stocks, we run on a just in time delivery basis throughout the supply chain,\" said Mr McPartlan. He is cautiously optimistic that the fear or concern the important shipping route The Strait of Hormuz would be closed is diminishing, and if that continues then wholesale markets will reflect that in prices.

However, this expectation of some kind of stability for now is no indication of what could lie ahead. \"To suggest what's going to happen weeks from now in a market which is really very dynamic would be foolish in the extreme,\" said Mr McPartlan.

What could be done to ease costs for consumers? Fuels for Ireland said Irish motorists pay more tax on fuel than any other EU Member State, and Ireland has a higher dependency on oil than all but one of them. They are calling on the Minister for Finance Paschal Donohoe to establish a group of experts to review how fuel for heating and transport is taxed.

\"Price volatility is largely and overwhelmingly a result of global events over which we have very little influence,\" said Mr McPartlan \"The one thing that we do have control over in this country is the taxation.\" Fuels for Ireland is proposing the group would include representatives from the fuel industry, environmental experts, economists, consumer groups including different demographics and people from rural areas.

The aim, according to Mr McPartlan, is to achieve shared objectives of making sure the state gets a fair return on tax from fuels, that renewable and sustainable options are supported and that they don't make it unaffordable for people. \"We think that all of those different interest groups, all the stakeholders could buy into that as a model for a conversation, we're hoping the Minister will do that and that he will make some changes in time for budget 2026.\" Mr McPartlan said the Minister has agreed to meet with them, and they are waiting to set a date.

Additional reporting by Reuters.