Petrol prices have now fallen below the £1 per litre benchmark
The price of petrol has dipped below £1 per litre for the first time in five years.
Three small service stations in the Midlands reduced the price of a litre of standard unleaded petrol below £1 during the weekend, with the Harvest Energy station in Alcester Road South offering it to motorists at 99.7p.
That's the lowest rate since 2009, although the average price across the country is still around 109 pence per litre, according to the RAC's fuel price monitors.
The surprise is that a small filling station was the first to dip below £1 per litre, rather than a major supermarket chain.
As the price of crude oil has nosedived in recent weeks – a situation prompted by oversupply – the supermarkets have engaged in a petrol price war, using low prices to tempt customers to shop at their stores.
RAC fuel spokesman Simon Williams told BBC Radio 5 Live that other petrol suppliers are likely to cut their prices below £1 per litre. "The whole market is definitely going in this direction," he said. "The price of oil has fallen dramatically from around $115 per barrel last summer to around $47 per barrel. The average price of petrol is now 109 pence per litre and diesel 116 pence per litre.
"The average for petrol is projected to come down to around 105ppl but the wholesale price is just at that point where an independent retailer is able to put it on at £1 per litre. They obviously won't be making too much money but the PR value from it is extremely good. The supermarkets are playing catch-up, which is unusual, but I think they will look to move very shortly."
Williams added that the price of oil could fall even further this year: "The price of oil is going to carry on coming down as far as we can see because OPEC [the Organisation of the Petroleum Exporting Countries] has indicated that it won't cut production. At the moment we have too much oil for the world due to the economic slowdown in Europe and the Far East, and OPEC has said it won't cut production even if the price of oil falls as low as $20 per barrel."
There is a limit to how low the fuel price can go, however. “It’s important to remember that while the cost of fuel itself has fallen, it currently only represents around a third of the overall pump price with the lion share being made up of fuel duty and VAT," said Williams. "At £1 a litre duty would be 57.95p and VAT 16.67p, leaving the cost of the oil and retailers’ margin at 25.38p – meaning tax would be three quarters of the forecourt price.”
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