Saturday 31 May 2008

How to win the battle against the soaring price of fossil fuel

Cutting your petrol costs

The easiest way to cut your fuel costs is to use your car a little less. Cycling and walking won't cost you anything (or, at least, a lot less in the case of cycling), and even public transport is likely to prove better value than jumping in your motor. However, for the millions of people who have no choice but to continue using their vehicles, there are a few easy ways to try and combat rising fuel prices.

A visit to www.petrol prices.com is a good start. This is a free site, which helps you track down the cheapest petrol prices in your area, and also lets you know just how much more you could be paying if you drive into the wrong petrol station. In south London, for example, it's possible to pay as much as 135.9p for a litre of diesel, or as little as 122.9p – a saving of around £5 for every tank.

Another way to cut your fuel bills is to make sure you sign up to the loyalty schemes of any fuel companies that you regularly use. Most of the major petrol station owners, such as Shell, BP and Esso offer loyalty schemes that will reward you with points every time you shop with them. These can then be redeemed for money off your petrol in future.

Another option is to pick yourself up a credit card that pays cashback, and make sure that you pay for all your petrol using the card. American Express's Platinum card, for example, will pay you 5 per cent cashback on all purchases for the first three months, and then between 0.5 and 1.5 per cent on purchases thereafter – depending on how much you spend on the card each year.

If you regularly buy your petrol from Shell garages, it's also worth considering the Citibank Shell Mastercard, which pays you 3 per cent back on all fuel purchases made at Shell stations, and 1 per cent on all other purchases.

If you drive a very long distance each year, it may also be worth signing up to one of the fuel providers' business accounts. Sites such as www.forecourtfuelcards.co.uk allow individuals who consume more than 250 litres of diesel each month to sign up to these plans, which can save you up to 3p a litre.

Finally, if you've got a diesel car that's 20 years old or more, there's a good chance you can get it to run on vegetable oil, which you should be able to pick up for as little as 10p a litre from a local restaurant.

Cut your energy bills

If you haven't reviewed your energy situation for a few years, there are a few things you can almost certainly do to save money. Siobhan Parker of switchwithwhich .co.uk points out that receiving quarterly bills and paying by cheque are about the most expensive way of dealing with your energy costs. However, if you switch to a monthly direct debit, and manage your bills online, you can save yourself tens of pounds in charges.

Better still, regularly updating your meter readings online ensures you don't get any nasty surprises, and are always being billed for what you've used.

Next, it's worth checking to see whether you could get a better deal with a different supplier. In most areas of the UK, you should get the choice of a handful of different electricity and gas companies. And, says Parker, there are greater savings to be made if you buy your gas and electricity from the same provider.

If you're worried about oil and gas prices climbing even further, another step you can take is to plump for one of the fixed or capped rate tariffs which most energy providers now offer.

As the name suggests, capped tariffs allow you to benefit from any falls in energy prices, while ensuring that you won't ever pay more than a pre-determined amount if prices continue rising.

Both fixed and capped rates run for a specific time period – usually two or three years – but, Parker says, consumers will usually have to start off paying as much as 25 per cent more than the regular rate at the start of the contract. If prices continue to rise, you'll be in the money. But if they fall, you could find yourself worse off than you would have been. The premium on capped and fixed rates is the price of peace of mind.

Websites such as switchwithwhich.co.uk, uswitch.com and moneysupermarket.com allow you to compare the different tariffs offered by competing providers in your area.

Finally, if you really want to work on cutting your energy bills, then there are a number of things you can do to make your home more energy efficient. Some of these will require a short-term investment – such as insulating your walls or installing double-glazing – while others are just common sense, such as turning lights off and not leaving appliances on stand-by. For more details on ways to make your home more energy efficient, visit www.energysavingtrust.org.uk.

Hedging your exposure

Another way to mitigate the rising cost of oil is to invest in it. There are a number of different ways to do this, the easiest of which is to buy an exchange traded fund from the likes of ETF Securities (www.etfsecurities.com). These will allow you to track the oil price, and grow your money if it continues to rise.

However, given the rises in oil that we have already seen, a direct investment could be a risky bet. If you're simply looking to offset the effects of any further rises in the price, a better way to hedge your future exposure would be to take a "leveraged" bet on the oil price. For example, ETF Securities' leveraged ETFs will earn you 2 per cent for every 1 per cent rise in the price of oil. This means that you can put less of your money at risk for the same potential return.

Alternatively, you could invest in covered warrants or use spread betting to hedge your oil exposure. These options are much more highly leveraged, meaning you need to invest only a small amount of money to make a relatively large return if the oil price rises. Obviously, if the price falls, you could lose some or all of your money, but if you look at it as buying insurance against the rising cost of oil, it can certainly make good sense.

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