A deal struck between the US and Iran has reopened the Strait of Hormuz to tanker traffic. Experts say the strait, which carries around 20% of the world's oil supplies, should take some of the pressure off oil markets.
Brent crude has already dropped below $80 (£60.44) a barrel after rising to $120 during the conflict. At its peak, according to the RAC, the average price of petrol rose by 20% to 159.53 pence per litre. Diesel hit 191.54 pence on 15 April, which was a 19% increase since the start of the conflict. But when will motorists see lower prices at the pumps?
While wholesale prices, which are the prices that retailers pay for petrol and diesel, can adjust quickly, the same cannot be said of pump prices, which move much more slowly.
That is because fuel retailers buy fuel in different ways. Gordon Balmer, the executive director of the Petrol Retailers Association, said: “There are some operators who work on a daily basis, while others buy on a weekly, fortnightly or a three-week lag."
As a result, retailers carrying petrol and diesel bought at higher prices may take longer to pass on lower wholesale costs than those buying more frequently.
Luke Bosdet, the AA’s head of policy, said that while a fall in oil prices feeds "almost immediately into commodity values for road fuel", motorists are likely to have to wait longer before prices at the pump begin to fall.
What determines how quickly prices come down?
According to Nigel Driffield, a professor of international business at Warwick Business School, a lot depends on the number of forward contracts signed during the recent spike in oil prices.
He 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.”
So when could drivers see some relief? According to figures from the AA, petrol prices have already fallen by 4.6 pence a litre and diesel prices by nearly nine pence per litre even before the peace deal was signed. The RAC says that on average, the drop in petrol prices is saving almost £3 a tank and for diesel car owners £9 a tank.
But despite the fall in fuel prices, Bosdet doesn’t think they will drop to pre-crisis levels any time soon. He said it could take months, depending on the size of the fall. “Remember: tankers could be in the wrong place, currently going to other oil/fuel sources away from the Gulf,” he added.
Driffield said his best guess was that drivers could begin to see lower prices within around three weeks, although much depends on what contracts have been signed.
“If buyers of oil or petrol have bought forward contracts during the crisis, then prices will take much longer to come down," he said. "If they haven’t, then prices will fall much more quickly as there won’t be a lot of priced-in inflation to feed through the system.”
However, Driffield does not believe that the crisis in the Gulf will prove to be as serious as the Covid crisis, which hit long-term refining capacity and production.
“Refiners and producers feared that they could be in lockdown for six months and so they signed forward contracts to guarantee supply, whereas in this crisis, they knew that the situation would only last a couple of months, and so why would they pay a high forward price when it is almost certain that something would happen that prices would come down in the next three months?” said Driffield.
