In December 2015, crude oil prices dropped to their lowest since 2004. This was largely thanks to fresh supplies flooding the market from new fracking sources, and after sanctions on Iran were lifted.
It would be logical to assume that lower oil prices mean good news for the motor trade, but is that really the case? Here are some of the facts, and a few ways a price drop can affect sales of new and used cars, insurance policy prices, and more.
1: Petrol prices haven’t dropped in line with crude oil prices
Currently, prices at the pump are hovering somewhere just within triple figures, with occasional forays below the pound, usually by supermarkets. Back in 2004, the last time oil prices were this low, petrol cost just 79p a litre.
2: Fuel tax governs how low your garage can go
It would be difficult for forecourt prices to drop further, since fuel duty and VAT per litre would make it prohibitive. Fuel duty has been frozen at 57.95p per litre since 2011, and the 2016 budget has kept it at this rate for another year.
3: Low oil prices make for a strong economy, at least in the UK
Low oil prices work out in favour of the UK, encouraging economic growth, creating jobs, and increasing consumer spending while keeping inflation rates stable. Britain currently imports more oil than it exports, so the fall in price is advantageous.
4: One country loses while another country gains
Other countries which rely heavily on imported oil are also reaping the benefits of lower oil prices. This group includes China, Japan, and India. Major exporters of oil, like Russia, Venezuela, and the Middle East, stand to lose out on an important source of income.
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5: Diesel may no longer be the more cost effective option
Once, drivers chose a diesel engine for the significant potential savings on fuel. Today, while diesel still just undercuts petrol for wholesale purchasers, the price at the pump for diesel tends to be slightly higher than that of unleaded.
6: The big oil companies underpin more than your petrol
Big oil companies, like BP and Shell, are major players in the stock market, which means that when their share prices drop, there are knock on effects for pensions and other income funds which rely on stocks and shares.
7: Drivers are more interested in economy than in going green
The chances are high that you’ll be seeing more SUVs on trade plates as motorists relax about petrol prices. Crossover SUVs and superminis are currently among the biggest sellers in the motor trade.
8: Other motoring costs rise as oil prices fall
Don’t forget that the insurance policy on that SUV will cost you more than your old, economical runabout. With vehicle insurance premiums predicted to rise by as much as 8% in 2016, it’s a good time to reflect that what you gain on the swings, you may lose on the roundabouts.
9: Price at the pump may not affect you as much as you think
Although many of us watch forecourt prices keenly, frequently driving to another petrol station or waiting another day to fill up in the hope of a lower price, petrol accounts for less than five percent of the average household’s weekly budget. Those who take public transport instead of driving are unlikely to feel the effect of the price drop.
10: It might be time to fly instead of driving
Aviation fuel is also affected by the falling price of crude oil, down 35% in December 2015 compared with the previous year. Airlines are eager to pass their savings on to their customers, with price cuts and special offers. Budget airlines in particular can be expected to slash ticket prices as they attempt to win passengers.
