UK petrol fuel prices have already fallen 4.6 pence a litre, and diesel is down nearly nine pence per litre, after a US and Iran deal reopened the Strait of Hormuz to tanker traffic. Brent crude slipped below $80 a barrel as the route carrying around 20% of the world's oil supplies reopened. Drivers are seeing relief now, but the pump is still catching up.
4.6 pence a litre is the AA figure for petrol’s drop before the peace deal was signed, while diesel had already fallen by nearly nine pence per litre. The RAC said that average petrol drop saves almost £3 a tank, and the diesel move saves £9 a tank. Those are the first numbers motorists can use at the forecourt, not just in wholesale markets.
Balmer on the pump lag
There are some operators who work on a daily basis, while others buy on a weekly, fortnightly or a three-week lag. Gordon Balmer, executive director of the Petrol Retailers Association, said that schedule is why wholesale moves do not hit forecourts at once. A retailer buying fuel on a weekly or three-week cycle can still be selling product purchased when crude was higher.
Luke Bosdet said the fall in oil prices feeds “almost immediately into commodity values for road fuel,” but he added that motorists are likely to wait longer before the lower cost shows up at the pump. He said prices might not drop to pre-crisis levels any time soon, and that it could take months depending on the size of the fall.
Nigel Driffield on contracts
Three weeks is Nigel Driffield’s best guess for when drivers could begin to see lower prices, depending on contracts. The professor of international business at Warwick Business School said, “I don't know what long-term contracts were signed and by whom, but that is what will determine how quickly actual prices reflect the reduction in oil prices.” He also said, “If buyers of oil or petrol have bought forward contracts during the crisis, then prices will take much longer to come down.”
The timing turns on those forward contracts. If buyers locked in fuel when Brent crude was at $120 a barrel during the conflict, the cheaper barrel price now has to work through older supply first. If they did not, Driffield said, “prices will fall much more quickly as there won’t be a lot of priced-in inflation to feed through the system.”
The oil shock itself was sharp. Petrol rose by 20% to 159.53 pence per litre at the start of the conflict, and diesel hit 191.54 pence on 15 April, a 19% increase since the start of the conflict. The reopening of the Strait of Hormuz has reversed part of that move already, but the pace at UK forecourts still depends on how much fuel was bought in advance and when each retailer clears that stock.
US and Iran deal pressure
During the conflict, Brent crude climbed to $120 a barrel. After the deal, it dropped below $80. That gap is the wholesale relief driver, and it is already showing up in the AA and RAC numbers, even if some of the cheaper crude is still moving through older contracts.
Comparing the current disruption with the Covid period, Driffield said refiners and producers feared they could be in lockdown for six months and signed forward contracts to guarantee supply, whereas this time they knew the disruption would only last a couple of months. “Tankers could be in the wrong place, currently going to other oil/fuel sources away from the Gulf,” Bosdet said. For motorists, the near-term question is simple: the cheaper barrel is here, but the full saving reaches the pump only as those older buying arrangements unwind.
