Crude oil prices fall below $109
Households and drivers could start to see some respite from higher fuel and petrol bills after the cost of crude oil fell back towards the $100 mark this morning.
The news that Hurricane Gustav failed to dent oil production prompted oil prices to drop to as low as $105.46 a barrel this morning - their lowest levels since April this year. Oil peaked at more than $147 a barrel in early July.
Despite the continuing political tension between oil-rich Russia and the West, crude oil prices are expected to continue falling.
Simon Denham, managing director of Capital Spreads, says that, under normal circumstances, political unrest would have pushed oil prices higher. But with western economies coping with slowing growth, higher inflation and rising unemployment, people are expected to use less oil – a fact that should prevent wholesale prices from rising up again anytime soon.
Denham believes this is good news for British households and drivers.
“Consumers will be breathing a sigh of relief as we head back towards the $100 a barrel mark, a level not seen for six months,” he says. “We're not there yet, but prices at the pump have already been easing and after the recent round of price hikes by energy companies, they're unlikely to head higher again in the near future.”
According to the AA, the average price of petrol is current 112.5p a litre while diesel is 124p a litre (3 September). Throughout August, petrol prices fell by 6.3p a litre, while diesel fell 7.5p a litre as a result of lower crude oil costs and a supermarket petrol price war.
The AA says that cheaper crude oil will result in prices at the pump falling in the coming weeks.
For households, the outlook for fuel costs is less certain. Over July and August, the big six energy companies all introduced a second round of price hikes that will see some families paying up to 35% more to heat their home this winter.
When announcing its second price hike, Scottish and Southern Energy (SSE), the second bigger energy supplier, offered some consolation to its eight million customers; it promised not to raise prices again this year.
Of course, this doesn’t mean prices won’t shoot up at the start of 2009. As Alistair Phillips-Davies, director of energy supply at SSE, pointed out at the time of his firm’s price rise, the UK’s dependence on energy imports leaves us in a vulnerable position, as prices are ultimately determined by “the law of supply and demand in a global economy".
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).