In Depth

Oil price continues to tumble: will petrol get cheaper?

As Covid-19 cripples the economy, lower fuel prices and reduced inflation may provide some relief

The global oil industry is facing a perfect storm as demand plummets because of the coronavirus pandemic at the same time as a spat between Saudi Arabia and Russia causes supply to skyrocket.

The oversupply means countries are running out of storage space for their excess of black gold, in what consultancy IHS Markit calls “the most extreme global oil supply surplus ever recorded”. 

The price now stands at around $27, having risen from just over $20 a barrel on 18 March - the lowest price in 18 years. Analysts have speculated that the crisis could see the price of oil drop below an unprecedented $10 a barrel.

Will UK consumers reap the benefit?

The drop in oil prices “will be felt most keenly by drivers”, says The Telegraph. “Bill payers will also benefit in coming months, with lower global energy prices and a cut to the Ofgem price cap from April expected to reduce gas and electricity costs.”

As the coronavirus lockdown massively reduces travel and economic activity, with people staying isolated at home, UK fuel faces a double impact similar to the global industry: a reduction in demand and abundance of supply. Earlier this week, Morrisons and Asda slashed up to 12p from the price of fuel.

It was, says The Sun, the UK's “largest ever single price cut”.

What’s more, as oil prices plummet, a number of industries will see their operating costs reduce. This, coupled with the reduced consumer demand, has resulted in a slowed rate of inflation.

Data from the Office for National Statistics recorded that consumer price inflation slowed to 1.7% in February from 1.8% the previous month, and this slowing rate should be of some help to consumers as the economy stutters as a result of Covid-19.

It was, said Howard Archer, chief economic adviser at EY Item Club, “a small step in the right direction for consumer purchasing power”.

He added: “Inflation looks certain to fall back markedly over the coming months which will provide some much-needed help for consumers and the economy.”

–––––––––––––––––––––––––––––––For a round-up of the most important business stories and tips for the week’s best shares - try The Week magazine. Get your first six issues free–––––––––––––––––––––––––––––––

Who loses?

“It is no exaggeration to say the oil industry faces its gravest crisis of the past 100 years,” says the Financial Times.

In the UK, the North Sea oil industry supports about 250,000 workers, and while the larger companies may be able to survive the plummeting prices, job cuts are likely to follow as costs are reduced.

The oil price war has already “wiped billions from the value of UK companies”, reports The Guardian, “and could threaten the long-term survival of weaker firms”.

Deirdre Michie, the chief executive of Oil and Gas UK, said the global price collapse has left the UK’s oil industry “in a paper-thin position”.

Recommended

Luna’s death spiral
An electronic board at a cryptocurrency exchange in Seoul
Why we’re talking about . . .

Luna’s death spiral

When will the Elizabeth line open?
The Elizabeth line entrance at Liverpool Street station in London
In Focus

When will the Elizabeth line open?

Is it worth paying off a student loan early?
University students graduate at Bath Abbey
Between the lines

Is it worth paying off a student loan early?

Trading currencies: what the experts think
The greenback is on the rise
Expert’s view

Trading currencies: what the experts think

Popular articles

What would happen if China invaded Taiwan?
Chinese troops on mobile rocket launchers during a parade in Beijing
Fact file

What would happen if China invaded Taiwan?

Is Russian President Vladimir Putin seriously ill?
Vladimir Putin
Why we’re talking about . . .

Is Russian President Vladimir Putin seriously ill?

The mysterious Russian oligarch deaths
Vladimir Putin has previously deployed ‘extreme measures’ to crush opposition
Why we’re talking about . . .

The mysterious Russian oligarch deaths

The Week Footer Banner