Motorists are set to enjoy further drops in the cost of petrol, with some economists predicting prices close to £1 a litre in the near future.
International oil prices fell to fresh five-year lows yesterday, while the cost of petrol on Britain’s forecourts also slipped further.
Average prices were on the verge of falling below 120p a litre, according to the latest data compiled by Experian Catalist – down from 130p in August. And Goldman Sachs economist Kevin Daly told MPs yesterday that if oil prices failed to rebound then petrol would drop to as low as £1.05 per litre of unleaded.
Prices of £1.05 per litre have not been seen in the UK since August 2009.
Some analysts suspect oil prices have yet to reach their trough after the failure of the Organisation of Petroleum Exporting Countries (Opec) to reach an agreement on restricting output to lift prices. “After the Opec meeting it looks as though the market will be left to itself until the next Opec meeting scheduled for June,” DNB Markets analysts said.
DNB has reduced its forecast for oil prices to $70 a barrel for 2015 from $80 and expects prices could drop slightly below $60 in early 2015. “With Opec giving up on its mission of ‘ensuring the stabilisation of oil markets’ and allowing the market to ‘balance itself’, the cartel has entered a new era and we believe oil will see higher volatility and lower prices in 2015,” Bank of America Merrill Lynch analysts said.
The price of brent crude – extracted form the North Sea – fell to $66 per barrel yesterday.
Brent crude prices last fell below $60 during the financial crisis but eventually recovered to $125 a barrel in early 2011. Part of the reason is lower demand due to slower global growth. Another part is higher supply on the back of greater production in the US.
Declines in petrol prices are likely to reduce inflation in Britain. Bank of England governor Mark Carney warned last month that inflation could dip below one per cent in early 2015 due to cheaper oil. If this consistently happens, Carney will have to write open letters to the chancellor explaining why inflation is so far wide of the two per cent target.
Meanwhile, consultancy group Oxford Economics yesterday predicted that a sustained fall to $40 a barrel could drag UK inflation down into negative territory.