Eddie Mair 4pm - 7pm
Oil price crash: What does it mean for petrol prices and UK?
21 April 2020, 11:31
Because of the coronavirus pandemic, great swathes of global traffic has ceased which has led to the price of US oil plummeting, but what does it mean for the UK?
The price of US oil turned negative for the first time in history on Monday.
This means oil producers are paying buyers to take the commodity off their hand and comes as a result of coronavirus lockdowns worldwide.
Why is the price of oil so cheap?
On Monday, traders were being paid more than 40 dollars to buy a barrel of West Texas Intermediate, the benchmark for US oil, partly due to a quirk of the market as falling global demand pushed the price into negative territory.
They were keen to offload their barrels to avoid being obliged to take delivery when the deadline for May contracts expired on Tuesday.
The price of US oil slipped back below zero on Tuesday. As trading in Europe began, West Texas Intermediate for delivery next month was trading at -$4.29.
This means producers were continuing to pay buyers to take oil off their hands due to limited access to storage.
Does it mean cheaper petrol in the UK?
Normally traders have no problem selling their contracts to a refinery, or other business that wants oil.
But international demand has dropped while Saudi Arabia ramped up production after a falling out with Russia.
Although Saudi Arabia and the rest of oil-producing cartel Opec has now committed to slashing production again, these cuts have yet to make an impact on a market flooded by oil.
However, the collapse is unlikely to lead directly to significant discounts for drivers at the pumps.
The price of Brent crude - which is produced in the North Sea - set to be delivered in June was only down 10 per cent at 25.63 dollars per barrel.
Campaigner Howard Cox, the founder of FairFuelUK, claimed that even before Monday's oil price collapse, the UK's fuel supply chain had "dishonestly held back" falls in wholesale costs which took place last month.
He said: "Even with 70 per cent less fuel being sold, the dishonesty from these faceless businesses, using the coronavirus crisis as a smokescreen to maintain their profits, beggars belief."
What are the long-term implications?
The US oil industry is due to take a significant hit and Donald Trump has hinted he may step in to support oil producers with financial support or tariffs on imports.
Russia faces similar issues to the US and according to Sky News' Ian King, the UK's oil price could follow suit.
Brent oil is trading at just $19 per barrel, which is down 25 per cent today alone.
That is its weakest level since 2002 when the world economy weakened following the 9/11 terrorist attacks.
The former boss of BP John Browne predicted prices will stay low for some time.
He said: "The prices will be very low and I think they will remain low and very volatile for some considerable time.
"There is still a lot of oil being produced that is going into storage and not being used."