Can the world’s oil industry really sustain falling pump prices
Falling pump prices are the best news for motorists in many years, with the cost of a litre of unleaded falling under the £1 mark at The Harvest filling station in Birmingham. This is the lowest price of petrol since May 2009.
This is the combined impact of falling oil prices on the world markets and competition between petrol retailers in the UK, particularly the large supermarkets.
Shale gas production in the United States coupled with continued output from countries within OPEC – the Organisation of Petroleum Exporting Countries - means that oil supplies are plentiful, suppressing the price that can be demanded for a barrel of oil.
However, concerns are already being raised that falling oil prices are not good for all.
Closer to home, experts warn that the collapse in prices could have a devastating impact on the North Sea oil industry, potentially costing thousands of jobs.
In a situation similar to that which occurred when mining of British coal became unviable, could it be possible that oil extraction in the North Sea might become unviable due to low prices globally? Once the rigs have been scuppered and the skills have gone, restarting production would be very expensive.
Will the taps be turned off?
It is estimated that 85% of new British oil and gas resources are already at the risk of being shelved.
According to data from Goldman Sachs, only one-fifth of the projected production from the 400 biggest new and planned oil and gas fields around the world would be profitable at current oil prices.
The prospect of the taps being turned off globally suddenly sounds very likely.
As recently as December 2014, OPEC said it would stand by its decision not to reduce oil production even if the price of a barrel of oil fell below $40 a barrel.
UAE energy minister Suhail Al-Mazrouei says that OPEC will wait at least three months before considering an emergency meeting of its members.
The price of a barrel of Brent crude oil has already fallen below $50 a barrel and has some way to go before it his $40, but the trend is definitely downwards.
Much depends on whether members of OPEC, who supply 40% of the world’s oil, can stomach lower profits than they have become used to. They are locked in a price war globally and might feel winning it long term is worth some short term pain while they force competitors out of business.
Equally, shale gas could turn out to be a sustainable source of fuel long term.
One thing is certain: Low oil prices are already reshaping the economic map of the world's fortunes, creating opportunities for some and problems for others. This could expose further political tensions which might also have an impact on oil production and trade.
Another factor to consider is the growing interest in electric vehicles, which now finally seem to be gaining traction.
However, falling petrol prices could serve to place doubt in the minds of people who are considering making the leap into a Leaf.
In turn, that could deter investment in the infrastructure required for electric vehicles.
OPEC claim that the world’s oil markets will stabilise themselves. Whether that is good for motorists remains to be seen.
But I wouldn’t rush out to exchange the Prius for a V8 gas guzzler just yet!
Are low pump price here to stay? Is it time to switch to an electric vehicle or go back to a gas guzzler? Let us know.