Oil slumps to a 2017 low: RAC calls for fuel price cuts
A combination of rising supply in the US and a diplomatic row between Saudi Arabi and Qatar has seen the price of Brent Crude oil fall to under $49 a barrel, which according to The Share Centre is the lowest it has fallen to in 2017.
The RAC said this price drop has led to a significant reduction in the wholesale price of both petrol and diesel, which it is urging retailers to pass on. It argues that petrol could be cut by 2p a litre, while diesel could be reduced by about 4p.
“We have been monitoring supermarket fuel prices closely since the oil price began to tumble hoping that we would see them come down, but sadly that has not happened yet,” said RAC fuel spokesman, Simon Williams. “In fact, one even increased prices by half a pence a litre.”
According to the RAC supermarket diesel is on average 114.33p a litre at present, but it should be closer to 110.5p a litre as the wholesale price is now lower than that of petrol. Meanwhile the UK average for diesel is 117.56p a litre, which the RAC argues is at least 4p too high suggesting that non-supermarket retailers are charging more for diesel than they should be.
“We sincerely hope the reason that retailers have not passed on savings in the wholesale price to motorists at the pumps this week is nothing to do with them thinking that people are distracted by the General Election,” said Williams.
So how long will the oil price stay low? According to Michael Baxter, an economics commentator at The Share Centre, it is not likely to rise by much for several years, which he says in turn will hit the profits of large oil companies such as BP and Royal Dutch Shell.
Baxter said: “At the moment, oil supply is being supported by shale gas and shale oil rather than what goes on at OPEC. Traditionally, the oil cycle has moved very slowly. When an oil well is shut down because the oil price is low, restarting it is very expensive. The term used in the industry is re-completing – many of the set-up costs have to be paid for all over again, and time lags are long.
“However, with fracking, the big cost relates to the huge volumes of water and chemicals that are injected deep down underground, and this is largely a variable cost. You could almost day that you can turn fracking on and off like a tap.
“For that reason, there seems to be a ceiling on the oil price at the moment.”