LONDON Oct 18 Oil priced in sterling is set for
its biggest yearly rise since 1999 and has already pushed UK
fuel prices to their highest since August 2015, even thought
much of the crude that Britain uses comes from UK-based
Expectations of lower supply and stronger demand have put
the oil price in dollar terms on course for its first
yearly rise since 2012, having touched a one-year high above $52
a barrel this month.
Data on Tuesday showed British inflation recorded its
sharpest jump in more than two years in September and most of
that rise came from higher clothing prices and fuel costs.
Oil priced in sterling has risen to its highest in 18
months, to around 43 pounds a barrel, and is set for its biggest
yearly jump since 1999, having risen by nearly 70 percent so far
Because oil is denominated in U.S. dollars, British
consumers will be unable to avoid the double-whammy of higher
crude prices and a falling currency.
Since Britain's vote to leave the European Union in late
June, the value of sterling against the dollar has fallen
by 18 percent to its lowest in more than 30 years.
"Sterling's depreciation has had a mixed effect so far. Some
essential items like petrol have seen higher prices, while
others like food have not," said Michael Martins, an economist
at the Institute of Directors.
"The fall in food prices is likely due to pre-referendum
dated contracts, short-term currency hedges, and inventories
being run down. The real effect of a weaker sterling has yet to
be felt in the sector."
The falling pound will inevitably deliver a windfall to
UK-based North Sea operators, many of which have been badly
squeezed by the price of oil struggling to break above $50.
According to Reuters trade flows data, the United Kingdom
has taken some 315 million barrels of oil so far in 2016, which
works out at a rate of around 1 million barrels per day, roughly
unchanged from last year.
Two thirds of that total comes from the North Sea, with 110
million barrels coming from the UK itself and a further 109
million from Norway, according to the data.
Producers and refiners work in dollars, meaning anything
from crude oil sales to rig hire is paid for in that currency,
even for transactions between two UK-based companies, while
operational costs such as salaries, or local investments in
infrastructure are not.
Prices of petrol at the pump are at their most expensive
since August 2015, having risen by 4 percent in the last year,
according to figures on Monday from the UK Department of
Business, Energy and Industrial Strategy.
(Reporting by Amanda Cooper; Editing by Mark Potter)