OPEC : Fuel tax: A consumer burden

Fuel tax: A consumer burden

OPEC Bulletin Commentary September 2008

In the final build-up to the 149th Meeting of the OPEC Conference in Vienna on September 9, concern about oil price volatility still dominates talks in energy circles. This is understandable given the erratic price behaviour that has characterized the market in recent times. First, there was the spiralling rise in oil prices, which saw the OPEC Reference Basket (ORB) price reaching $140.73/barrel on July 4 from $68.71/b in August 2007. Then came a sharp drop of more than $31/b by the second week of August, with the ORB plunging to $109/b on August 12.

Without doubt, such volatility is a great cause for concern to all stakeholders in the energy industry — producers, consumers and investors alike. While the average consumer expresses most concern over the first development, namely rising oil prices, for obvious reasons, the producer and investor are concerned equally with both developments — rising oil prices, as well as increasing volatility in the market.

A stable oil market should be the desire of all parties. To fulfil our commitment to bringing about this stability, OPEC has continuously ensured that there is adequate supply of oil on the market and has also maintained comfortable levels of spare capacity. In addition, our Member Countries have been making huge investments to expand capacity, in order to meet expected increases in demand.

While OPEC will continue to work for the stability of the oil market, with prices that are neither too high nor too low, we believe that the plight of the average consumer in some of the industrialized countries can be greatly ameliorated by their governments looking into their own takes in the pump prices of petroleum products.

A comprehensive study undertaken by the OPEC Secretariat early this year, on the composite takings from a litre of fuel sold at the pump in G7 nations between 2003 and 2007, shows that the governments of these countries made $2,585 billion from oil taxes. For the same period, OPEC producing countries’ governments made a total of $2,539bn.

It should be noted that, while for consuming countries’ governments, this revenue is pure windfall, which will continue to be received from the sale of petroleum products in their territories, for the producing countries, a huge chunk of their own take is ploughed back into the sector for capacity expansion projects, in order to be able to continuously satisfy the world’s oil needs. In other words, producing countries, often with more social, economic, infrastructural and other problems, which require more funds to tackle, do not have the liberty to spend all their revenues on these and other needs, as they have to re-invest part of their take in the industry, in order to secure current and future supplies to consumers.

It is high time consuming countries’ governments demonstrated, in practical terms, their oft-repeated claims for concern about the effect of high gasoline prices on the disposable income of their people. One effective way they can do this is to review the taxes they impose on those who use petroleum products.

This Commentary is taken from the September edition of the OPEC Bulletin which can be downloaded free of charge in PDF format from the OPEC website.

OPEC Bulletin (September 2008)

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