Petrol prices that jump up and down like jack-in-the-boxes must be economic indicators of some sort — but of exactly what sort is hard to say.

This month, average prices at pumps within a ten-mile radius of Oxford broke through the £1-a-litre barrier, again, having peaked in July last year at 119p before dropping back to 88p.

But why do prices fluctuate so wildly, and what does such volatility mean for the economy?

The director of the Oxford Institute for Energy Studies, Christopher Allsopp, said: “Round about February or March, crude prices fell off a cliff and plunged to about $32 a barrel, with traders believing there was no bottom of the market.

“Now the prices have risen again to nearly $72 a barrel on optimism that the global economy has bottomed out.”

And there, of course, is the possible Catch 22 — could the doubling of crude prices stymie the very recovery (or at least the green shoots of recovery) that caused them in the first place?

On the ground, here in Oxford at least, that would indeed sometimes appear to be the case. The owner of Oxford cab company Radio Taxis, Jeffrey Measor, said: “Trade has dropped off and the price of fuel is going up. In the current economic state you can’t put fares up as the price of fuel rises as you are fighting for trade. Competition is fierce — it’s very difficult.”

Mr Allsopp would not be drawn on the subject, except to point out that in the end prices are based on “what the world economy can cope with, and what the Saudis can get”.

The price surge has also been helped along by the weakness of the US dollar, the currency in which oil trades are made. But even now the crude price looks low when compared to the $142 a barrel of July last year.

Mr Allsopp added: “The consensus seems to be that the market could settle at between $70-$90 a barrel.

“At the back end of last year, traders were buying futures at that price, and even King Abdullah of Saudi Arabia has said he would be happy to see it settle about there.”

He added that the OPEC (Organisation of Petroleum Exporting Countries) had held together remarkably well — better than expected — during the unprecedented downturn in demand following the credit crunch crisis. But he admitted: “This is not a well-understood story and it’s hard to predict longer-term. The price recovery could have nothing to do with fundamentals.”He said that the price needed to be high enough to make it viable to exploit new sources of oil, such as tar sands in Canada, yet low enough not to hold back any nascent recovery.

And of course the relatively high price of oil keeps our own British North Sea oil sector in business.

Mr Allsopp said: “The price needs to be high enough to make digging it out viable.”

For years now, experts have predicted that Britain is about to switch from being a net exporter to a net importer of oil, but that turning point has again and again been delayed by price rises making it viable for sector operators to continue drilling.

Long ago, during the first oil crisis of the 1970s, a cartoon appeared in Punch magazine depicting a Scotsman in a kilt appearing at an OPEC meeting full of robed Arabs. Nowadays, his right to join would be in some doubt.

Mr Allsopp said: “Britain is now technically just about self-sufficient in oil but this makes little difference practically for the man in the street.

“And with regard to the nation’s balance of payments, because the oil is so much more expensive to get now than was once the case, the Government does not benefit to anything like the same extent.”

Global oil demand dropped for the first time in 15 years in 2008, falling at its sharpest rate since 1982, according to the industry-leading BP statistical review, published this week.

Last year, worldwide consumption dropped by 0.6 per cent or about 420,000 barrels per day and for the first time, demand from developing economies, particularly China, overtook demand from OECD (Organisation for Economic Co-operation and Development) countries such as Britain.

The drop was caused firstly by record high prices and then by world economic collapse.

Despite the downturn in 2008, the US remained the world’s biggest energy guzzler, accounting for 20.4 per cent of world supply, with China coming in second with a 17.7 per cent share, according to figures from the 2009 BP Statistical Review. UK consumption was 1.9 per cent.

In terms of oil consumption alone, the world consumed 3,927.9m tonnes of the stuff in 2008, of which the US burned 884.5m tonnes, China 375m tonnes — and the UK 78.7m tonnes.

With such wildly fluctuating demand, who could blame economists for their reluctance to predict future petrol prices — but it does now seem as though they will stay about the same as now, or slightly higher, in the immediate future. After that, who knows?

And one last question: why do comparative prices between petrol and diesel vary so widely in different countries?

Mr Allsopp explained that this was usually down to tax. In the UK, however, that was not the case.

Price differences here are simply down to questions of supply, demand and distribution.

For instance, some countries, such as France, have promoted diesel; others, notably the US, have very little diesel. LPG (Liquefied Petroleum Gas) is cheaper per litre in the UK because it is taxed less heavily.

According to the RAC, a motorist using LPG does fewer miles per litre but it still often works out cheaper overall.