Fuel Forum

With over 100 years of experience in the fuel industry, we believe there is no question or problem that Portland cannot answer or help you solve. We want to hear your questions and issues with regards fuel buying, fuel quality, fuel consumption, petrol forecourts, grades of fuel, refining etc, etc, etc. The list really is endless and we would like you the fuel user to test us so we can help you!

Feel free to send us a question. We will publish it on this page along with the best answer we can give. Please indicate if you wish to remain anonymous and we will publish the question without your name.

Read our forum questions below:

February 6, 2012 Hi there. I take home heating oil to heat my house and I have noticed that the invoice refers to 28s Burning Oil. What does this mean?

Thanks for the question Fergus. “28s Burning Oil” is the old / traditional name for home heating oil. It is actually exactly the same grade of fuel as aviation turbine fuel (Jet Fuel), ie, the stuff that goes into aeroplanes! In fact, the only difference between what jumbo jets use and what goes into your boiler at home, is that the latter has a pale yellow dye, to identify it as domestic / non-transportation use only.

The “28s” (28 seconds) term refers to the fantastically archaic test that was historically used to measure the viscosity of fuel products. Viscosity is essentially the pouring characteristics of liquid fuel – “pourability” would be a better term, but we dont think its a word! Anyhow, using a Redwood Viscometer, the fuel is poured through a narrow hole (less than 3mm in diameter). The time it takes 50ml to pour through the hole is the “second” measurement. So Kerosene is a 28 second fluid, whereas the slightly heavier Gasoil (Red Diesel) is sometimes called “35 second oil”, because it takes 7 seconds longer than Kerosene to flow through the same hole.

That such tests were ever invented boggles the mind, but we assume people just had more time in those days…

This question comes from Fergus in Ballymena, NI

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January 18, 2012 How is the pre-tax diesel pence per litre price calculated?

Wotcha John, roll out the barrel, how’s ya father, Shaaaaat uppp and the only way is Essex. There – we’ve got all our Southend stereotypes out of the way in one sentence. How’s the Westcliff Casino BTW? Many happy memories…

This is a good question on how diesel is priced and a subject that probably causes more confusion amongst the general public than any other.

If we go from the top downwards and take the current forecourt price for diesel which is circa £1.40 per litre (or in pence per litre = 140ppl). From that, we have to deduct VAT, which is circa 20ppl. Then another Government tax has to be removed which is called duty (currently at 58ppl). This leaves us around 62ppl for diesel exclusive of tax. As the forecourt retailer will be looking for a gross profit of about 5ppl, this takes us down to circa 57ppl and this price is the European Wholesale Price. So shocking fact No 1, is that Government tax on diesel is one and a half times the actual value of the product!

The action now moves over to Antwerp – Rotterdam – Amsterdam (sometimes incorrectly abbreviated to “the Rotterdam Market”), where cargoes of diesel are traded daily. A cargo trade is defined as a sale from a refiner (or storage terminal) to a trader’s ship and the minimum volume for a cargo sale is typically 15ml (ie, 15,000,000 litres). Every day these cargo trades are recorded and published in US $. That figure is converted to pence per litre using the day’s exchange rate and that figure is the European Wholesale Price.

John from Southend asked this question

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December 22, 2011 What is the total amount of sales of Red Diesel (Gasoil) in the UK per annum?

Annual Red Diesel (Gasoil) sales in the UK amount to circa 5.5 million tonnes. That equates to 6,500,000,000 (6.5 billion) litres.

As an interesting aside to this question, many fuel consumers are unaware that Gasoil is in fact the same grade as normal Diesel – the only specification difference being the red dye that the taxman puts into Gasoil to show that it cannot be used for road transport. On the other hand the price difference between the 2 grades is vast. Duty on Diesel as we know is 57.95 pence per litre (ppl), whilst on Gasoil it is only 11.14 ppl. This makes for a tempting diesel alternative (ie, circa 45ppl cheaper) but don’t even think about it – HMRC (Her Majesty’s Revenue & Customs) fines for misuse of Gasoil are huge.

A straight-forward one from Philip in Newport, Shropshire

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December 6, 2011 In your response to my question about FOB and CIF, I noted that you said 'the CIF price is usually higher than the FOB price'

You need to come and work with us Michelle. You are really getting into the nitty-gritty on this one!

Logically you are right of course. How can a price that includes transport ever be lower than a price that doesn’t? If that was the case, transport would need to be a minus cost and whilst freight margins are tight, they are not that tight!

However, the premise above is working on a built up cost basis (ie, Product Cost + Transport Cost) and it does not take into account of demand factors. So for example, if every wholesale buyer in Europe wanted to pick up product ex-jetty (FOB) rather than have the product delivered (CIF), then the FOB price would go up. At the same time, the value of CIF product would go down.

This scenario might be a function of buyers in a particular week having their own (in-house) transport, thus doing away with the requirement for CIF (delivered-in) price quotations. Or perhaps the result of major overseas buyers, looking for product to pick up by ship for export outside of Europe.

All of that being said, it is still an extremely rare event for a FOB price to be equivalent to a CIF price, let alone above it.

Michelle from Hertford has got in back in touch with this supplementary question

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November 25, 2011 Flicking through the business pages of a freebie commuter paper recently, I saw a number of the listed oil prices had 2 prices quoted - one was a FOB price and one was a CIF price. What is the difference?

Hats off to the paper that has these details, because when people loosely refer to the “oil” price or the “Rotterdam” price or the “wholesale” price or the “market” price, they are more often than not, referring to 2 prices; FOB and CIF.

FOB stands for Free on Board – an old trading term to indicate the price of a product from source. It is sometimes referred to as the ex-jetty price, as it indicates a price exclusive of shipping, ie, the buyer has to make their own arrangements to transport the product to their relevant market place.

CIF on the other hand, refers to Carriage, Insurance and Freight, or in other words, the price of the fuel at source (ie, FOB) plus transportation. Basically the seller is saying to the buyer, “fine you can have the product, but if you are not going to come and get it and instead, we have to transport this product to your premises, then the price will clearly be higher”.

For obvious reasons, the CIF price is usually higher than the FOB price, because CIF has to cover transport costs, on top of the FOB price. In this way, the difference between the 2 quotes is an accurate measure of shipping and insurance tariffs. If the CIF quote is much higher than the FOB quote, then transport is obviously expensive, whereas when the CIF quote is much closer to the FOB quote, then transportation elements (shipping, insurance, import tariffs) are minimal.

Final point on this is that in the main, the UK is a CIF market. This is because the source of refined oil is seen as the Antwerp – Rotterdam – Amsterdam (ARA) region. So a purchaser of oil can buy from ARA at FOB, but then has to ship this product over the North Sea to the UK, thus incurring extra (transport) costs.

This great question was asked by Michelle from Hertford

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September 7, 2011 What exactly is an arbitrage / arbitrage trading?

An arbitrage is the difference in oil price between 2 different regions. The price difference reflects variances in localised supply / demand between the 2 regions in question.

So for example, petrol might have a value of $800 per tonne in Northern Europe. However, because demand for petrol is higher in the United States, the price might be higher (say $825) and an arbitrage thus exists, even though the product in question is identical. So petrol will be shipped from European refineries over to the USA (rather than being sold in Europe), as even with shipping costs, there is still more money to be made in the USA than in Europe.

However by taking petrol out of the European market, a supply shortage is created, thus pushing the price of petrol up. Conversely in the States, a flood of product from Europe lowers the price. So the arbitrage is removed and European and US prices equalise. Another reason for arbitrages to disappear is when shipping costs rise so much (because demand has gone up as a result of the arbitrage), that the price advantage is wiped out.

Arbitrage traders will spend their time observing different geographical markets (ie, future supply situation, developing demand characteristics) in an attempt to predict and profit from future arbitrage opportunities.

A question from Alan in Glasgow

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