Weak Sterling and the impact on oil

Today's warning from Gordon Brown on the oil price sparked a few thoughts in the Collective. Prices have tumbled from $150 to $40 per barrel in the last few months, and we've seen falls at the pump from around 120p to 89p/litre.

One of the reasons generally given for why prices at the pump don't fall in line with the market is the level of duty charged, and there is no doubt that the UK is one of the most heavily penalised Western countries.

However another reason, for which the UK government can also take great credit, is the slump in the value of Sterling.

In July 2008, crude cost around $147 per barrel, and at the same time the exchange rate stood at about $2:£1, so in Sterling £73.50 per barrel. Today crude is around $44 per barrel, but with Sterling having weakened this equates to £29.00.

In simple terms, oil has fallen in price to around 30% of its peak dollar price, but in UK terms it's only fallen to 40%. To put this in perspective, oil in the UK would be £7 per barrel (or 25%) cheaper if the currency hadn't crashed.

Thanks, Gordon.