Why record low oil prices might not mean lower pump prices

petrol pump

The price of a barrel of crude oil plummeted by 66 percent in March, falling to its lowest level in 18 years. The cost of a litre of unleaded fuel dropped from 122.72p to 113.54p as a result. That’s a fall of 9.18 percent.

Meanwhile, the supermarkets announced some major cuts, with prices dropping to 104p and 111p for petrol and diesel respectively. Asda finished March selling petrol for 102.7p and diesel for 108.7p.

But the RAC is warning drivers that fuel prices are unlikely to drop below £1 per litre, with retailers already feeling the effects of the lockdown. Demand for petrol is down 75 percent, while diesel is down 71 percent as motorists stay at home.

Road travel has dropped by 73 percent during the lockdown, leading to a stark warning from the Petrol Retailers Association (PRA). It said that 1,000 retailers could be lost as a result of the coronavirus and plummeting oil prices.

According to the RAC, further price cuts remain a possibility if retailers are prepared to pass on the savings they are making to drivers.

‘At pains to trim their prices’

Esso petrol station

RAC fuel spokesman Simon Williams said: “The oversupply of oil continues to suppress the barrel price and it’s clear now that plans by some of the world’s largest oil-producing nations to limit production haven’t yet been enough to lift the price – there’s currently too little demand for oil in the first place.

“It’s right that retailers charge a fair price for fuel that reflects the price of the raw product, and in theory petrol prices could fall below £1 per litre if the lower wholesale costs were reflected at the pumps – but at the same time people are driving very few miles so they’re selling vastly lower quantities of petrol and diesel at the moment. This means many will be at pains to trim their prices any further.

“We also continue to be concerned about smaller forecourts that provide a vital service in areas where the supermarkets don’t have a foothold as many are already finding conditions tough with sales having fallen off a cliff since lockdown. It would be bad news all round if these forecourts shut up shop for good.”

As of Sunday 26 April, the pump price for a litre of petrol was 109.3p, while diesel stood at 114.8p. Around two-thirds of the price of fuel goes to the government in form of duty and VAT.

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