Why prices fluctuate

Campaigners against fuel price increases have asked why energy companies do not use the profits they make from extracting and producing crude oil to subsidise prices at the pump.

This may look like an easy solution but it is unworkable in practice, as it takes no account of commercial and legal realities. The wider context is outlined below:

• Energy companies do not control the price of crude oil. A free market determines the price, weighing up the same factors as many other markets: stock levels, supply and demand, politics and economic performance and market sentiment.

• The price of crude oil varies widely; yet oil companies have to take careful account of this uneven market factor before they invest billions of dollars in the complex, high risk, long-term projects, typically between 20 and 30 years, needed to find and produce oil. When, in 1998 the crude oil price fell below $10 a barrel, it triggered severe cut backs in investment and the near collapse of some oil-producing economies.

• It is becoming more complex and more expensive to find and produce oil. To find workable oil reserves, companies now have to look further into deep water and remote locations, using ever more sophisticated technology. Higher costs naturally increase the financial risk.

The energy industry is now developing renewable and alternative energies for the future and this also requires major long-term investment.

Fuels retailing is a highly competitive industry, which is good news for consumers. At Shell we are committed to pricing competitively everyday and monitor competitor prices on a daily basis to ensure that you are getting good value for our quality fuels.

All Shell operating companies are committed to the Shell General Business Principles that support free enterprise and fair competition. They state clearly that all Shell companies must abide by competition laws. One of the most serious breaches of competition law is price fixing.