This is a guest post provided by Jason David Lloyd, Managing Director of PetrolPrices.com. The article wasn’t written by the Redex team.
It’s hard to believe that it’s now been over a month since citizens of the UK voted to leave the EU in the “Brexit” referendum.
In the run up to the vote, we heard various predictions regarding what would happen to the price of petrol and diesel in the event of an “out” result. The most outlandish prediction (especially with the benefit of hindsight) was one made by Goldman Sachs, which led the AA to surmise that fuel could rise by nearly 19 pence per litre in the event of an out vote.
We now know that this prediction was wildly inaccurate. Fuel rose by just a couple of pence per litre in June. This was an understandable rise due to the weakening value of Pound Sterling against the Euro and the US Dollar on the global currency market when the referendum result was announced. As oil is traded in US Dollars, a weak Pound will always mean that fuel ends up being more expensive.
Now, as we enter August, it’s price reductions that look likely. Various factors have contributed to an increasing worldwide glut of oil, including an increase in shale oil production in the USA. The lifting of sanctions on Iran has also resulted in more oil entering the marketplace.
Essentially, this means that supply is vastly outstripping demand, which is putting downward pressure on the oil price. This, in turn, results in lower wholesale fuel prices and (eventually) lower prices at the pumps.
Predicting what will happen to petrol prices in the medium to long term is something of a fool’s errand, as many different factors can come into play. That said, there are a few things we can consider in order to make as informed a guess as possible.
With regard to Brexit, as things stand at the moment the Pound is substantially weaker than it was earlier in the year. While this continues there will be a little upward pressure on the price of petrol and diesel. However, this is already factored in to the prices we’re paying now, so unless Sterling weakens further (which seems fairly unlikely), exchange rate concerns shouldn’t have any dramatic impact on pump prices.
Then there’s the price of oil; Nobody really expected the price of a barrel to rise above $50 this year in any event, and that was before this most recent glut. This has the likely effect of tempering any possible increases later in the year – preventing them becoming significant increases.
So, we can say with a relative degree of confidence that there’s almost no chance of fuel rising back up to 2011-2014 price levels at time soon. If anything, the short term news suggests we may see some price reductions, and possibly another supermarket fuel price war. Beyond that, any more detail is too tough to call.
Jason David Lloyd is Managing Director of PetrolPrices.com. PetrolPrices.com is dedicated to helping UK motorists locate the cheapest fuel near to them, with the help of mobile apps and website searches.