Gasoline prices will fall as Saudi Arabia prepares to flood the oil market

Motorists are set to benefit from lower prices at the pump as the world’s biggest oil exporting nation prepares to increase output.

Brent crude fell more than 2% to less than $72 a barrel on Thursday after reports suggested Saudi Arabia was ready to abandon its $100 crude oil price target to prepare for increased production .

It extends oil’s slide from above $90 a barrel in the spring, with drivers already seeing an improvement in filling up their cars compared to earlier in the year.

Saudi Arabia’s plans, which were reported by the Financial Times, indicate that the country will increase production even if it means a prolonged period of lower profitability.

A liter of petrol has averaged just over £1.35, according to figures from the Department for Energy Security and Net Zero, down from £1.55 a year ago and a peak of more than £1.90 sterling in 2022.

Petrol costs an average of £1.40, down from £1.60 last September and a peak of almost £2 following Vladimir Putin’s invasion of Ukraine.

The RAC’s Simon Williams said the further fall in the price of petrol meant motorists could expect more reductions in fuel costs at the pump in the coming weeks.

He added: “A relatively low oil price, driven by lower global demand, and a relatively strong pound are the two factors contributing to lower pump prices. We believe there is scope for pump prices to fall further over the next few weeks to reflect the lower wholesale costs that retailers are paying when buying fresh fuel stocks.”

However, experts have warned that prices are at risk of rising again with the Tory government’s temporary 5p cut in fuel duty set to expire in the spring.

Edmund King, chairman of the AA, has called on Rachel Reeves, the chancellor, not to use lower prices as an “excuse” to launch a tax raid on motorists in next month’s Budget.

“Although prices are lower now and have come down, we don’t want this to be an excuse for the Treasury to increase fuel duty,” he said.

“Fuel prices fluctuate erratically due to world events. It’s good for drivers right now, but it’s not guaranteed to last. The Treasury can use it as an excuse, then who knows, two weeks later the global price could go up again and it’s a double whammy for drivers.”

Lower gas prices will also play into global politics as the cost of living is a major factor in the US election campaign. Democrats have been blamed by Republicans for high inflation in recent years, and thus could benefit from lower fuel prices in the States.

However, the US is now also a net exporter of energy thanks to the fracking boom, so lower prices risk hurting parts of the US oil and gas industry.

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Brent’s decline was accelerated by separate news in Libya that its rival factions had agreed on a process to appoint a new central bank governor, paving the way for exports to resume.

Fears that Saudi Arabia’s plans will trigger a dramatic drop in the price of Brent wiped almost £11bn off the value of Britain’s biggest oil giants on Thursday. BP and Shell fell at the bottom of the FTSE 100, down 4.8% and 4.7% respectively.

Ashley Kelty, director and oil and gas research analyst at investment bank Panmure Liberum, said: “Crude prices have given up some of the recent gains on news that a deal has been reached in Libya that could see production resume.

“There are also longer-term concerns about the state of the Chinese recovery and the subsequent impact on demand growth. China’s new stimulus package failed to impress investors, with some analysts saying it was a mere band-aid and would not help solve the economy’s underlying structural problems.

“In Libya, agreement to elect a new central bank governor could see both ‘governments’ resume oil production and exports, adding up to 1 million barrels a day to global supplies.”

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