Will petrol prices keep rising? UK ‘facing a perfect storm’

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Petrol prices: RAC spokesperson reacts to criticism from The AA

As the price of crude oil continues to fluctuate, drivers across the UK have been battling with stubborn petrol prices since the start of the year. Chancellor Rishi Sunak enforced a 5p fuel duty reduction during his Spring Statement in an attempt to ease the financial pinch for households and albeit only a small saving, this discount hasn’t quite made its way to consumers’ pockets. While the Russia-Ukraine war wages on, are Britons likely to see any reduction in fuel prices or are we on track to see more record-breaking figures?

Both petrol and diesel reached a grim milestone this month. RAC Fuel Watch recorded the current average price for petrol steeping to 182.31p per litre, while diesel prices are averaging 186.57p per litre.

UK forecourts made its largest daily jump in prices in 17 years on Wednesday, exacerbating the already sky-high living costs Britons are currently facing.

People have taken to Twitter to voice their frustrations, with user @JimDelahunt commenting: “Petrol seems to have gone up 10p in a week with no announcements…WE ARE BEING ROBBED BLIND.”

The AA is calling for a 10p fuel duty cut, as well as a fuel duty stabiliser to reduce duty as prices go up, and increase it when they fall.

AA spokesman Edmund King said: “A fuel price stabiliser is a fair means for the Treasury to help regulate the pump price but alongside this, they need to bring in more fuel price transparency to stop the daily rip-offs at the pumps,”

“The £100 tank is not sustainable with the general cost of living crisis so the underlying issues need to be addressed urgently.”

When fuel first broke records in March at 151-155p per litre, it would have been hard to envisage prices soaring a further 30p in a short three-month time span. Will prices continue to rise?

Will petrol prices continue to rise?

Andrew Black, principal and supply chain expert at global procurement consultancy Efficio, told Express.co.uk: “For the foreseeable future the answer is likely to be ‘yes’.”

“The lockdown in China is currently suppressing demand there, but if and/or when China starts to open back up, that will put additional pressure on demand, which is already increasing quickly as the world recovers from Covid.

“At the same time, the ability to rapidly increase supply is constrained by the long timelines to bring on new investments in capacity; the situation in Ukraine and Russia; and the fact that there is less surplus capacity amongst the other big oil producers than there used to be.

“We are facing something of a ‘perfect storm’”.

Why are petrol prices rising?

There are several factors putting pressure on oil and gas supply chains, which are, in turn, driving the price of petrol up.

Mr Black said: “Coming out of Covid, demand has rebounded much more strongly than people, particularly in the oil and gas industry itself, expected.

“This is compounded by the fact that relatively low oil prices before and, particularly, during Covid, have led to a period of under-investment in the industry which means there are fewer big oil and gas projects in the pipeline able to pick up the slack.

Mr Black continued: “This has been made substantially worse by the geopolitical situation, which is worse now than at any time since the end of the Cold War.

“The prospect of major sanctions on Russia’s oil and gas industry, although the right thing to do from a security perspective, has had a significant effect on the energy market.

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“Russia produces 4.5m barrels of oil each day. Only Saudi Arabia produces more and, whereas in the past, Saudi Arabia usually had sufficient excess capacity to allow it to ramp up production to meet shortfalls elsewhere and help stabilise prices, increasing global demand has reduced its ability to provide this ‘buffer’.”

“Other major producers are also struggling to increase capacity, although the US government is trying to encourage more oil exports from Venezuela’s heavily sanctioned oil industry.”

When might we expect to see fuel prices drop?

We shouldn’t expect any magic in the foreseeable but thankfully, these higher prices don’t appear to be the new long-term normal.

Mr Black said: “Higher prices are likely to be here for a while with only the prospect of either a new Covid variant leading to more lockdowns, a recession, or a dramatic change in the Russia-Ukraine conflict likely to have any big impact on prices in the next six to 12 months.

“Longer-term, new capacity will come online and demand will adjust downwards.

“For example, this phase of high pricing is likely to accelerate the move to using electric vehicles in a similar way to the massive oil price increases in the 1970s, which shifted consumers to buying more economical vehicles instead of the gas-guzzlers that had been commonplace up to then.”

What needs to be done for fuel prices to ease?

Mr Black said: “In the UK, a significant portion of the final price of petrol and diesel is made up of Fuel Duty and VAT which, together, make up about 45 percent of the total cost.

“Fuel Duty was recently cut by 5p per litre but in practice, it looks like a lot of this was simply pocketed by retailers and the benefit to consumers was small.

“If the Government really wanted to, it could cut Duty again or reduce fuel VAT, although at some point this would obviously need to be made up via increases elsewhere or just accepting that the country runs a higher deficit until things calm down.

Mr Black continued: “The Government has also recently announced a 25 percent levy – definitely not a ‘windfall tax’, or so says the Government – to help consumers cope with rising domestic fuel bills.

“High prices are likely to be here for a while and we may still be some way from the peak.

“Unfortunately for consumers, this means we may well hit £2 per litre later this summer.”

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