Petrol Prices in UK: Current Dynamic Will Prove Difficult for Independent Filling Stations - Analyst

© AP Photo / Matt DunhamA BP petrol station is seen in East Molesey, south west London, Tuesday, Feb. 2, 2016
A BP petrol station is seen in East Molesey, south west London, Tuesday, Feb. 2, 2016 - Sputnik International
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Petrol prices in the United Kingdom are approaching £1 per litre for the first time since 2016. The decline comes amid an oil price slump in March due to the coronavirus pandemic and the OPEC+ deal failure.

According to Jack Allardyce, oil and gas analyst at Cantor Fitzgerald Europe, prices have fallen due to the recent crash in wholesale oil prices, which has been caused by a combination of increasing supply due to the end of an agreement between major producers and a collapse in demand as the global coronavirus pandemic has massively restricted travel and industry.

Sputnik: What are the reasons for this situation?

Jack Allardyce: While UK fuel prices are linked to the underlying oil price, there are various other factors at play, including fuel duty, VAT and local market dynamics. This is the reason that petrol and diesel prices have fallen far less dramatically than crude benchmarks.

Sputnik: Do you foresee a further drop in petrol prices?

Jack Allardyce: It is certainly possible. With crude demand forecast to fall massively this month and global storage close to capacity, oil prices (and in turn fuel prices) could fall further.

Sputnik: How might the situation change for the UK if the OPEC+ group strikes a deal to slash oil production?

Jack Allardyce: Any new supply pact could provide some support to oil (and petrol) prices, although the predicted 10mmbopd cut to production would appear insufficient to offset the near-term fall in demand (which is forecast to be as much as 30%).

Sputnik: What kind of prices are consumers seeing now and how is it affecting British car owners?

Jack Allardyce: In some areas prices are apparently as low as £1 per litre, although average prices at the end of March were still over 110p. However, there remains significant variation, with supermarkets generally leading the way with price cuts (which is possible given fuel is not a primary business and can be sold at little margin or even a loss), while local competition also having an impacts. While the fall in prices will be a welcome saving to consumers, current travel restrictions probably make this somewhat negligible.

Sputnik: How might this situation affect independent filling stations around the country?

Jack Allardyce: The current dynamic will undoubtedly prove very difficult for independent filling stations, with margins hit by price cuts and sales volumes falling dramatically due to the COVID-19 restrictions.

Sputnik: What could the long-term consequences be for the industry?

Jack Allardyce: In our view current oil prices are not sustainable in the medium term given underlying demand (post-pandemic measures) and achievable breakevens, so we would expect fuel prices to increase as crude benchmarks recover, albeit in a more orderly fashion given the dynamics previously mentioned. However, if the current low oil price environment and travel restrictions persist over the coming months we could definitely see a number of closures of independent fuel suppliers.

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