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:

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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August 2, 2011 What is Fracking (in simple terms please)?

Fracking has received its own share of controversy (banned in certain countries), although probably less so than tar sands exploration. Fracking is a process of drilling into areas that are suspected of holding reservoirs of natural gas. At the point of correct depth, a horizontal bore is drilled and (typically) a water / chemicals slurry is fired at high pressure into the bore to rupture the rock outwards and create fissures, whereby the natural gas can escape.

The main objections to fracking are environmental (ground-water contamination) and safety (underground destabilisation causing gas releases and sometimes surface-based explosions). However, the industry is young and to date, much activity has been carried out in a largely unregulated manner. With demand for “frack-gas” showing no sign of abating, legislation across the world is now catching up.

Another from Jon in Brussels

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August 1, 2011 In the last monthly report, Portland mentioned that the exploration for oil from tar sands was controversial. This seems to be the general view, but why? Also, why has it taken so long to find out that the tar sands can be used to produce oil?

This is a hot potato and will probably get the tar sands lobby on our case! But here is what we believe to be a balanced view on the subject.

The exploration for oil in the Canadian tar sands makes eminently good sense in the current economic climate. After all, every piece of analysis points to a long-term supply shortage versus crude oil demand. Therefore, any rich source of oil supply is inevitably going to be explored.

However, tar sands exploitation is a very messy business and has a fairly poor environmental track record. Giant tar lakes have historically scarred the landscape, polluting rivers, affecting fish stocks and destroying flora and fauna. Such pollution can, and should of course, be contained and increasingly, stricter controls are being enforced by the Canadian Government.

However, there is no getting away from the fact that producing oil from tar sands is tremendously energy intensive and generates significant carbon emissions – much more so than conventional exploration for oil. This is essentially because tar sands contain more impurities (tar sludge, metals, rock etc) than conventional oil and all this has to be removed through industrial processes before the product is ready for refining.

This energy intensity issue answers the second part of your question with regard the “discovery” of the tar sands oil reserves. The oil has always existed and oil companies have always known this. However, because of the energy required to extract and prepare tar sands, the cost of exploration has up until now been largely prohibitive. As a rule of thumb, the crude oil price has to be in excess of $75 per barrel for the tar sands to be commercially viable. So with prices now sitting around the $100 barrel and few analysts predicting much of a dip in this price, the tar sands are receiving serious investment and exploration.

Jon in Brussels

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