UK fuel prices could continue to fall to 86p per-litre but then be stalled or increased by taxation.
Fuel prices could continue to fall to 86 pence per-litre but taxation might then halt its progression, the RAC argued.
Petrol and diesel cost 102p/103p per-litre on average, but some supermarkets charge less than 100p.
Naturally, the price on forecourts is linked to the value of crude oil. It has fallen to about $28 per-barrel compared to $115 in June 2014. Standard Chartered – an international bank – suggested the price could fall to $10.
The RAC said $20 per-barrel equates to a forecourt charge of about 90 pence a-litre and $10 to 86 pence (cheaper forecourts).
RAC Fuel Spokesman, Simon Williams, said: “With no apparent end in sight to the free-falling price of oil, motorists can expect some really low fuel prices in 2016."
"Breaking through the pound per-litre price point for both petrol and diesel was clearly a welcome landmark.”
However, there is: “A limit to how low prices can go as tax – fuel duty at 57.95p per-litre and VAT on the total price, including fuel duty – make up the lion’s share of the price of a litre.”
He added: “Even if the fuel was given away and the retailers didn’t take a margin, the price of a litre would still be 70p”.
Rise coming in March?
Since the 1990s fuel duty rises have hit motorists' wallets hard, with the most significant rise – in the 1993 Conservative budget – adding 10p, coupled with a ‘fuel-price escalator’, which meant the cost of fuel would be increased annually by 3 per cent above inflation in the following years.
After protests in 2000, Gordon Brown all but scrapped the price escalator, although fuel duty still rose in the following years.
More recently, planned rises – such as the 3p rise confirmed in the 2012 budget – have been scrapped.
After a lengthy freeze during the Conservative-Liberal Democrat Coalition, George Osborne failed to mention fuel duty during his Autumn Statement in November 2015. Could he have a planned rise coming in March?
Majority of fuel price is tax
Mr Williams emphasised: “Every motorist should know that the tax-take at £1 per-litre is 75% - and at 86p per-litre it rises to a staggering 84%. Strangely, this means that VAT alone would be 14p, which would be more than the cost of the fuel and the retailer’s margin.”
He concluded: “Sadly, the Chancellor looks likely to put duty up in the Budget in March for the first time since January 2011. We would urge him not to use lower fuel prices as an opportunity to extract even more tax from the motorist at the pumps”.
Cost to the industry
The price of a barrel of crude oil – as with every product and service – is defined, in part, by supply and demand.
HSBC Chief Executive, Stuart Gulliver, explained: "Major producers are currently delivering 2 to 2.5 million barrels per-day more than demand, so the question is how long they can continue to overproduce for at that level".
Low prices have already had a considerable impact on the industry. The Guardian revealed that 65,000 jobs have been lost in the British offshore oil industry alone (since June 2014).
Furthermore, BP plans to cut a further 4,000 positions and Shell – if it merges with the GB Group – 2,800.