Petrol Prices at Record Levels: It's the Exchange Rate, Stupid

I'm sure you'll come across many vitriolic outbursts by people this week as petrol prices hit their highest levels ever. That vitriol will be directed at two entities: The government, and the oil companies.

But this FT article gives a good account of why that anger and abuse would be poorly directed.

The exchange rate is causing much of our difficulties. Remember, if the exchange rate depreciates then imports cost more since we need more currency to buy them now. Hence oil costs more, and so petrol costs more.

Added to that, the recession meant people have started driving less (400 miles on average a year, according to the RAC), and so oil companies have had to cut refinery capacity as a result. Hence supply has fallen off too, contributing to the problems.

So it's not all as clear as you might thing, and not all the government's, or BP's, or Shell's fault.