Drivers are set to benefit as Saudi Arabia plans to increase oil production, causing Brent Crude prices to drop. This move has already led to lower fuel prices at the pump, with further cuts expected in the coming weeks.
UK Drivers Likely to Enjoy Lower Fuel Costs as Saudi Arabia Plans to Increase Oil Production
By Arezki AMIRI
Published on 26 September 2024 20:02
British motorists can expect to enjoy lower fuel prices as Saudi Arabia, the world's largest oil exporter, forecasts an increase in oil production. This decision follows a drop in Brent Crude prices, which fell by more than 2% to below $72 per barrel on Thursday. Reports suggest that Saudi Arabia has abandoned its $100 price target for oil, opting to boost output instead.
This trend extends a broader decline in oil prices since spring, when prices exceeded $90 per barrel. Consumers have already noticed a drop in fuel costs when refuelling compared to earlier in the year.
Current Fuel Prices Reflecting Oil Decline
In response to these developments, the average price of petrol has dropped to just over £1.35 per litter, according to the Department for Energy Security and Net Zero, down from £1.55 last year and a high of £1.90 in 2022. Diesel prices have followed suit, averaging £1.40 per litter compared to £1.60 last year, with prices peaking at nearly £2 after Russia's invasion of Ukraine.
Simon Williams of the RAC pointed out that with the continued decline in oil prices, drivers can expect even more reductions at the pump in the coming weeks. Williams explained that both lower global demand and a strong British pound are contributing to this trend.
“We believe there is scope for pump prices to come down further in the next few weeks,” he said, citing lower wholesale fuel costs retailers are currently paying.
Risk of Future Price Increases
Despite the short-term relief, experts warn that prices could rise again. The UK government’s temporary 5p fuel duty cut is set to expire in the spring, and this could impact future fuel costs. Edmund King, president of the AA, has urged Chancellor Rachel Reeves not to use lower fuel prices as a pretext for increasing taxes on drivers.
King stated: “Although prices are lower now, we do not want this to be an excuse for the Treasury to hike fuel duty. Fuel prices fluctuate due to global events, and a price rise could follow soon after a tax increase, hitting drivers twice.”
Lower fuel costs are expected to have global political consequences, particularly in the US, where the cost of living has become a significant factor in election campaigns. The Democrats, who have faced criticism for high inflation, could benefit politically from declining fuel prices. However, since the US is now a net energy exporter, thanks to the fracking industry, falling prices could harm certain sectors of the domestic oil and gas industry.
Other Factors Impacting Oil Prices
In addition to Saudi Arabia’s production plans, Libya's recent political developments have accelerated the fall in Brent Crude prices. Rival factions in Libya have reached an agreement to appoint a new central bank governor, potentially opening the way to restore oil exports. This could add up to 1 million barrels per day to global supplies.
Ashley Kelty, director and research analyst at Panmure Liberum, remarked that news from Libya and concerns over China's economic recovery have added to long-term worries about demand growth. Analysts have expressed scepticism about the effectiveness of China’s latest stimulus measures, warning that they may not address deeper structural issues within the country’s economy.
Meanwhile, fears of Saudi Arabia's production increase caused stock prices for British oil giants to plunge. BP and Shell saw their shares drop 4.8% and 4.7%, respectively, as nearly £11 billion was wiped from their market value on Thursday.