Petrol prices to be slashed to £1 a litre as global oil continues to fall in cost

Asda, Morrisons, Sainsburyís and Tesco have all announced price cuts of 2p per litre on petrol after prices for Brent Crude Oil drop to less than $53 a barrel, the lowest level since January 2010. With countries like Saudi Arabia maintaining production levels in the face of reduced demand, prices for oil are dropping rapidly (by more than 50% in the last 6 months), causing analysts to warn about global economic slowdown.

However, on the consumer end of it all, it looks like good news as falling oil prices reach the pumps as the big four supermarkets all announce 2p price drops, bringing prices per litre down to as little as 105.7p. Indeed this marks the seventh price drop in the last six weeks for Sainsburyís.

Simon Williams, fuel spokesman for the RAC is on record as saying: ìthe cuts are bringing us ever closer to the £1-per-litre average for petrol,î something he described as ìan extremely welcome move for motorists and businesses alike.î

In light of falling oil prices serving to reduce wholesale costs, Williams added: ìwe think there is still more room to cut further, perhaps by as much as 5p to 6p by the end of January.î A drop to below £1 a litre for petrol would be great, and to have such a drop by the end of the month would be even better.

However, not everyone is as optimistic as Mr. Williams; AA president Edmund King expressed reservations about such a quick decline to below £1-per-litre ìpartly because 70% of the price is tax.î He also emphasised that the price drops we are currently seeing are only really taking place in higher demand areas of the country (i.e. bigger cities), whereas smaller rural towns are being left behind somewhat.

So motorists are feeling the benefits, as are airlines RyanAir and BA whose stock has gone up, but the plummeting oil prices are causing a general slowdown in the global economy, with the FTSE, Dow Jones and the Nasdaq, along with most major oil companies, all falling in the last couple of days. The sharp drop in oil prices (Brent Crude was at $115 in June 2014 ñ now itís below $53) is not looking to stop any time soon as well, as supply continues to outstrip demand and shows no sign of slowing.
 
Russiaís economy is perhaps the worst hit, due to its reliance on oil and gas, which make up 70% of the countryís exports, and the profits from which account for most of their government spending. As part of an attempt to counteract this, Russia have continued to increase production of oil, however this move is as much a part of the problem as it is a solution to it.

Commerzbankís senior oil and commodities analyst Carsten Fritsch joins many other analysts in claiming that ìAlmost all market news [regarding oil] and the fundamental backdrop are negative and it is difficult to see much upside at the moment.î The problem is now in balancing the consumer benefits with the global economic downsides of the continuous drop in oil prices; it is a tricky situation, the solution to which will be very telling as to where the governmentís interests really lie, as well as being a true test of their ability to force a compromise.

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