Petrol and diesel fuel prices are expected to fall much sooner than those of home energy gas, according to new analysis by the Centre for Economic and Business Research (CEBR).
With soaring gas and oil prices, exacerbated by Russia’s invasion of Ukraine, the economics consultancy said that despite the price of gas remaining high, there was “some hope for early relief at the petrol stations” with a series of factors that “should work to bring the price of oil down by the end of the year”.
The average price of petrol and diesel in the UK currently stands at 163.28p and 177.29p per litre respectively, down from mid-March highs that saw the price of diesel in some locations hit as much as £2.07 per litre.
Today’s slightly lower prices are partly in response to both changing market conditions and the government’s 5p cut in fuel duty as part of the Chancellor’s Spring Statement mini-budget, and will likely fall further, said the CEBR.
Russia is the world’s second-largest oil producer and its invasion of Ukraine has resulted in severe sanctions from the United States, the European Union, the UK and other countries, as well as pledges (including from the UK) to reduce dependency on Russian oil in the coming years.
The US has imposed an oil embargo on Russia, and while no major sanctions currently exist in Europe on Russian gas and oil, an EU embargo on Russian oil has been discussed as part of a potential future round of sanctions should the war continue — something that the CEBR says is unlikely to have much impact on the downward-trending price of fuel.
“Oil is an international market, and the commodity is very transportable. This means that as long as large purchasers around the world continue to buy, sanctions in the West on purchasing oil from Russia can only have a limited effect because the Russians can sell, if typically at a discount, elsewhere,” said the CEBR’s chief energy adviser, Mike McWilliams.
“What could and almost certainly will have an effect is that production in many other places can be stepped up over a period of a few months, strategic stockpiles can be released, and high prices can affect demand. All of these factors should work to bring the price of oil down by the end of the year.”
The cost of a barrel of Brent crude stood at $104 last night and the CEBR predicts the price to fall below $90 by 2024 with “much of the fall forecast by December 2022”. This is expected to translate to a reduction of 8p per litre in prices at the pump.
‘Production in many other places can be stepped up over a period of a few months, strategic stockpiles can be released, and high prices can affect demand. All of these factors should work to bring the price of oil down’
The CEBR expects the United States to increase oil production and put pressure on Opec countries in the Middle East to ramp up their output.
“We forecast that the US State Department can pressure Middle East producers to increase supply by around 1.5 million barrels per day,” said McWilliams.
“The Baker Hughes rig count [a barometer for the health of the drilling industry in the US] this week had risen to 670, not far off the pre-pandemic level, suggesting some recovery in US domestic supply as well.
“It’s hard to see the current price of oil being sustained for long given all the factors at play that should bring it down.”
Gas supply is, however, expected to remain affected for much longer due to a difference both in market dynamics and the need for bespoke gas infrastructure. Thus far, many countries such as Germany and Italy, which are heavily reliant on Russian gas, cannot immediately substitute Russian gas for liquefied natural gas (LNG) shipped from elsewhere because of the lack of specialist LNG terminals.
“Until terminals are built and operating, and demand is reduced, Europe has to choose between facing a recession and continuing to buy Russian gas. In all probability there will be a bit of both,” said McWilliams.
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