Oil prices at lowest level since 2021 - but will motorists benefit?

A slump in oil prices could lead to further reductions at the fuel pumps but any benefit risks being stripped away next month as the chancellor seeks ways to bolster the public finances.

A barrel of Brent crude, the international benchmark, slipped below $70 for the first time since December 2021 on Tuesday afternoon.

The month ahead contract was down by as much as 4% on the day at one stage, following a monthly report by the OPEC+ group of major oil-producing nations that further cut demand expectations for both 2024 and 2025.

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The weakening prospects, coupled with growing expectations of oil oversupply, kept the market suppressed according to analysts.

They said the only upwards pressure was being applied by an incoming storm that could affect production in the Gulf of Mexico.

Oil prices have plunged from levels nearer $90 since the beginning of July, largely on the back of evidence that major economies are slowing.

Motoring groups have long complained wholesale fuel prices have failed to keep pace with that decline – being quick to rise but slow to fall.

Sustained oil weakness should push fuel costs down further

Wholesale costs, also recently aided by a stronger pound versus the oil-priced dollar, stood last week at their lowest levels since October 2021, according to the AA.

But it said that without the 5p-per-litre fuel duty cut imposed by the last government to keep a lid on rising prices in 2022, that three-year low for wholesale costs would have been delayed by up to a fortnight.

The AA said the gap between wholesale costs – what retailers pay – versus pump prices had reduced in recent weeks amid regulatory pressure.

Critics have long accused retailers of profiteering, bolstering their margins for a third year after the Competition and Markets Authority accused filling stations of overcharging motorists to the tune of almost £2.5bn during 2022 and 2023 combined. Supermarket chains were singled out for particular criticism.

But with oil costs falling further, it is speculated that chancellor Rachel Reeves may feel able to remove the 5p duty cut without drivers noticing much change at the pumps, assuming pump prices continue to ease – albeit slowly.

She is widely expected to use her first budget on 30 October to fill, what she can, of a £22bn “black hole” she claims to have found in the public finances inherited from the Tories.

Cuts to winter fuel payments are among measures already announced.

The Treasury has refused to comment on possible other announcements though the wealthy have been put on notice that they will bear the brunt of tax hikes.

A fuel duty reduction has, therefore, not been ruled out.

AA president Edmund King said last week of a fuel duty hike threat: “Removing it threatens to send millions of low-income drivers back into the era of ‘perma-high’ road fuel prices.

“Getting rid of the fuel duty cut unleashes a £3.30 a tank (standard 55 litres) shock on the personal and family budgets of the 28% of drivers who spend a set amount when they go to a fuel station.

“With 33 million drivers in the UK, that is more than nine million affected private motorists – most of whom are low-income and struggling to balance their budgets.

“If the current pump price rebounds to 144p a litre, and then 6p is added with a fuel duty hike and the extra VAT it will bring, it will plunge the least well-off families and families back into the nightmare of petrol at 150p a litre or more”. he concluded.