Gasoline and diesel prices are expected to fall much sooner than gas prices for household energy, according to a new analysis from the Center for Economic and Business Research (CEBR).
With gas and oil prices soaring, exacerbated by Russia’s invasion of Ukraine, the economic consultancy said that despite the price of gas remaining high, there was “some hope for rapid relief at gas stations” along with a series of factors that “should work to bring the price of oil down by the end of the year”.
The average price of petrol and diesel in the UK currently stands at 163.28p and 177.29p per liter respectively, down from highs in mid-March which saw the price of diesel in some places reach up to £2.07 per litre.
Today’s slightly lower prices are partly due to changing market conditions and government action 5p fuel tax reduction as part of the Chancellor’s Spring Statement mini-budget, and will likely decline further, CEBR said.
Russia is the world’s second largest oil producer and its invasion of Ukraine has resulted in severe sanctions from the United States, European Union, United Kingdom and other countries, as well as promises ( including from the UK) to reduce dependence on Russian oil. In the years to come.
The United States has imposed an oil embargo on Russia, and although no major sanctions currently exist in Europe on Russian gas and oil, an EU embargo on Russian oil has been discussed as part of of a potential future round of sanctions should the war continue – something that CEBR says is unlikely to have much impact on the downward trend in fuel prices.
“Oil is an international market and the raw material is very transportable. This means that as long as big buyers around the world continue to buy, sanctions in the West on buying oil from Russia can only have a limited effect because Russians can sell, albeit generally at a discount, elsewhere,” said CEBR’s energy chief. councillor, Mike McWilliams.
“What could and almost certainly will have an effect is that production in many other places may be ramped up over a period of months, strategic stocks may be released and high prices may affect demand. All of these factors should contribute to lower oil prices by the end of the year.
The cost of a barrel of Brent was $104 last night and CEBR predicts the price will fall below $90 by 2024 with “much of the decline expected by December 2022”. This should result in an 8 pence per liter reduction in prices at the pump.
“Production in many other locations may be ramped up over a period of a few months, strategic stocks may be released and high prices may affect demand. All of these factors should help drive down the price of oil.”
CEBR expects the United States to increase oil production and pressure OPEC countries in the Middle East to increase production.
“We anticipate that the US State Department will be able to pressure Middle Eastern producers to increase supply by approximately 1.5 million barrels per day,” McWilliams said.
“The number of Baker Hughes platforms [a barometer for the health of the drilling industry in the US] this week had risen to 670, not far off the pre-pandemic level, also suggesting some recovery in US domestic supply.
“It’s hard to see the current price of oil holding up for long given all the factors at play that should drive it down.”
Gas supply, however, is expected to remain affected for much longer due to a difference in both market dynamics and the need for tailored gas infrastructure. So far, many countries like Germany and Italy, which are heavily dependent on Russian gas, cannot immediately replace Russian gas with liquefied natural gas (LNG) shipped from elsewhere due to lack of terminals. Specialized LNG.
“Until the terminals are built and operational and demand is reduced, Europe will have to choose between facing a recession and continuing to buy Russian gas. In all likelihood there will be a bit of both,” McWilliams said.