How low will petrol prices fall?

How low will petrol prices fall?

Latest Motor News // 15 January 2015

blog image

With crude oil prices continuing to fall, consumers are set to benefit as the downward pressure on the price of petrol at the pumps continues.

This week, the price of Brent crude oil fell to its lowest level in six years and the UK’s biggest four supermarkets all cut their fuel prices again.

Asda, Morrisons, Sainsbury’s and Tesco have all reduced the price of a litre of petrol and diesel by a further 2p. At Asda this means that drivers will pay no more than 103.7p a litre on petrol, and 110.7p a litre on diesel.

These cuts came as one garage in Birmingham announced it was now selling petrol at 99.7p a litre.

So the question is: just how low could fuel prices at Britain’s petrol stations go?

Simon Williams, RAC motoring organisation:

The decision of three forecourts in the West Midlands to sell petrol for under £1 a litre – last seen in 2009 – is clearly having a ripple effect on the supermarkets as they are continuing to bring their prices lower still.

With a barrel of oil now costing around $47, we are surely only weeks away from the milestone price of £1 a litre being a common sight at petrol stations up and down the country.

This will also have a very positive effect on reducing the average price of both petrol and diesel for motorists everywhere.

And, as the current oversupply of oil is believed to be part of a long-term Opec strategy to keep oil prices low, there is every reason to think that motorists may well enjoy low prices for some time to come.

However, we are now getting to a point where the share that the Treasury takes from the forecourt price is nearing 75%, which is a bitter pill for motorists and retailers.

We should perhaps be seeking a commitment from all the major political parties that they will not look to increase fuel duty in the next parliament.

Quentin Wilson, motoring journalist and lead campaigner for Fair Fuel UK:

I think some of the investment banks, such as Goldman Sachs, are saying that oil is likely to drop to $40 a barrel this year. We’re getting to 99p a litre at some petrol stations now.

You could say petrol prices might drop to 85p if retailers react to oil prices.

Oil has reduced in price by 58% since June, yet petrol has only gone down 50% – clearly someone in the value chain is making a profit.

There’s pressure from me with my Fair Fuel UK campaign, and George Osborne, to lower petrol prices.

It’s a classic example of the rocket and feather effect. When oil prices go up, retailers and suppliers are quick to respond and prices at the pumps rocket the next day. But when oil prices go down, petrol prices fall as slow as a feather.

Petrol retailers blame the cost of refining and so on, but it doesn’t have to be like this. In France, for example, the price of petrol varies daily.

Consumers here are being disadvantaged, someone in the chain is hanging on the profit.

Brian Madderson, Petrol Retailers Association:

 

I put the floor price at $40 a barrel of crude, which translates to £1 a litre at the pump.

This is the limit, as tax is 75%. It doesn’t leave enough for cost of product, handling and retailer profit.

Crude oil is priced in US dollars, so the weakness of sterling against the dollar is worth about 4p – but that hasn’t been passed on yet, the price now should be cheaper.

The Birmingham petrol stations selling for 99p will be making a loss – the wholesale cost of unleaded is at least 99p.

The price is heading slowly to £1 a litre.

At present, it’s entirely possible as oil producing nations, and Opec, aren’t doing anything to stop the freefall.

If we get down to £1 a litre, people will start looking at the tax duty.

I’m going to a meeting at the Treasury where we are calling for a 2% drop in tax.