Falling N. Sea crude oil price brings lower energy costs and provides stimulus for energy-efficiency

David Hunter, energy analyst at Schneider Electric.
David Hunter, energy analyst at Schneider Electric.

The average pump price of diesel has fallen below 113p per litre for the first time since January 2010, according to the information group Experian Catalist.  Diesel had been more expensive than petrol in the UK for 14 years, but its price is now falling more quickly than petrol.

David Hunter, an energy industry analyst with Schneider Electric, explains why prices are falling:

“The forces of supply and demand have been tussling for a while. Faltering economic growth in resource-hungry countries like China is keeping a lid on demand for oil, while on the other hand there is a supply glut. 

“These supply excesses are being driven by the rising US production holding steady despite the falling value of oil, while OPEC (which controls around a third of global supply) is ‘keeping the taps open’ to protect its market share.

“The biggest factor for the future path of fuel prices remains the crude oil price – if it continues to fall, and sterling holds its value against the dollar, then further reductions at the pumps are possible.

“While wholesale refined fuel markets are influenced by oil, other factors such as refinery capacity and changing fuel mix demand also affect the price. Recently, Saudi Arabia has ramped up production of ultra-low sulphur diesel for export to Europe – resulting in steeper falls for diesel than petrol.”

“Motorists could see the price of diesel hit the £1 per litre mark, if the forces of supply and demand continue to tussle. Petrol prices have come down by around 1.5 pence per litre in the last four weeks, but diesel by a further 5 pence.  Diesel has been more expensive than petrol in the UK for 14 years, but this situation ‘flipped’ at the end of July.

“Falling fuel costs are putting serious money in the pockets of consumers and business. Not just through lower energy bills, but also reduced indirect costs like logistics and manufacturing. The opportunity to invest directly in energy efficient technology will protect consumers from future price volatility when markets inevitably recover.

“Diesel car sales have grown over the last decade in response to tighter emissions regulations designed to reduce carbon dioxide emissions per kilometre.  The average new car sold in Europe is around 10 % more efficient than three years ago, so investing higher disposable incomes in new cars will create a virtuous cycle on emissions. 

“Of course, the switch to an electric car would reduce this further, especially if allied to growing household use of solar panels.”

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