Petrol prices are set to ease downwards as economic, fiscal and commodity trends combine to provide some positive news for UK motorists, according to the PRA.
Brian Madderson, PRA chairman commented: “A number of key factors and forecasts are combining to give a positive spin to the outlook for retail fuel prices in 2014.
“However motorists with petrol engines may fare better than diesel engine drivers as the price differential between these two grades of fuel could easily widen towards the record levels seen five years ago.”
He says the key factors that can be attributed to this positive change in fuel prices include:
• Oil trade analysts predict another fall in the average price of Brent Crude to US$105, down from US$108 last year and US$112 in 2012;
• City experts believe that the 10% revaluation of sterling against the dollar since July may result in the Bank of England increasing interest rates before the year end which is likely to further strengthen the rate towards $1.70 to the pound.
In addition, US oil output is expanding rapidly so that imports of gasoline from UK refineries will no longer be required. With domestic demand for petrol falling by 6% last year and set to continue, there will be increased competition among these refiners to sell surplus product. In any normal market, these factors should force wholesale prices down.
Madderson continued: “UK demand for diesel is increasing at 4% per year which, with limited availability from local refiners, is compelling domestic suppliers to import an ever larger volume from Russia and the Middle East/Asia. This is an international marketplace and the seller has a dominant position.
“With over-supply of domestic gasoline and tight supply of imported diesel, the likelihood is that the differential between petrol and diesel prices at the pump will widen still further from the present 8ppl to as much as 12ppl. This has been a volatile position over the last few years with data from Experian Catalist confirming the widest gap was reached at 15.32ppl on 1 January 2009. Since that time the gap has narrowed to as little as 2.33ppl in August 2010 but with recent averages being in the range between 4-6ppl.
“Should both crude oil costs and the exchange rate behave as analysts predict, then petrol prices at the pump could ease yet further downwards averaging as low as 126-128ppl but with diesel sticking around 138-140ppl.”