Motorists around the country could be seeing another drop in the price of fuel, as the cost of oil continues to fall. It dropped to $45 a barrel last week. Fuel prices have reached their lowest point since the beginning of the year, as the price of Brent crude has fallen steadily from $57 a barrel in February to the current low of $45.
This has meant that motorists are paying around 5p less on petrol and 6p less on diesel than they were five months ago. Now, the question on everyone’s lips is, how much lower will prices go?
Why the price is falling
The price of crude oil has fallen more than 20% since the beginning of 2017. The price drop was expected, but the scale of the drop has been larger than most had anticipated, for several reasons.
An increase in oil production by both Nigeria and Libya pushed the price down to around the $45 mark earlier this week. Both of those countries are exempt from the supply cuts announced by OPEC members and other oil-producing countries back in November 2016.
Another factor is the continued oil production in the US, which has undermined the OPEC deal and meant that there was less confidence in the deal’s long-term viability. The deal was aimed at keeping the price of oil (and fuel) up, but it doesn’t seem to be having the effect that OPEC desired.
Changing pump prices
Motorists are now hoping that these falling oil prices will translate to savings at the pump. However, according to Brian Madderson of the Petrol Retailers’ Association, the fall of the pound might offset the price fall, as oil is traded in dollars and the uncertainty around Brexit might cause fuel prices to fluctuate rather than fall.
Prices are expected to fall to around 110-112 pence per litre, from the current average price of 114.9p for unleaded. The supermarkets will lead the change, with the big four supermarket retailers having already dropped their prices this month, forcing the large petrol retail brands to follow suit.
On 15 June, ASDA, Sainsbury’s, Tesco and Morrison all moved their prices down by around 2 pence, as the cost of oil reached $48 a barrel. ASDA then went one better by saying that motorists would pay no more than 111.7 pence per litre for fuel at any of its petrol stations around the UK (currently 308 sites).
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Pressure on retailers
As the price of oil has fallen another $3 per barrel since the retailers last changed their prices, there is growing pressure to make another cut in fuel prices, to allow motorists to feel the benefit of the change.
The price on 24 June;was 115.0 pence per litre for unleaded on average, while diesel was 115.7 pence per litre. This is substantially above the price guaranteed by ASDA before the latest change in crude prices. The reason? Non-supermarket retailers are selling their fuel at an average of 4-5 pence per litre more than the supermarkets, as we indicated in our article last week.
PetrolPrices believes that prices will continue to fall at the pump, with prices of around 110 pence per litre for unleaded, and diesel 0.5 pence above that, by mid-July. ASDA is expected to lead the way again; we estimate it will put its price at around 107.9 pence per litre.
Other supermarkets will likely be around 108-109 pence per litre, while non-supermarket retailers are likely to set prices around the 112-114 pence per litre mark by the middle of the next month.
While cheaper fuel prices are definitely on the cards for July, it’s not clear as to what will happen beyond that point with the price of oil. If countries continue to defy the production limits set by OPEC, then we could be seeing further price falls this year.