Petrol prices have hit their lowest level in two years, despite the widening conflict in the Red Sea that has spiked fears they will rise.
The average price of petrol at the pump in the UK sat at 140p per litre on Tuesday – a decrease of 26 per cent compared to July two years ago, when it hit 199p. Diesel is now down to 148p per litre.
Even though the attacks by Houthi rebels on vessels in the Red Sea have intensified in recent days, there are only limited signs of disruption in the flow of crude oil and refined products like diesel and petrol to Europe.
Currrently, disruptions in the oil market are not likely to be significant as other sources of supply are keeping up with demand, analysts and economists said.
This means pump prices are likely to keep falling, according to Simon Williams, spokesperson for RAC.
“This is good news for drivers,” he added. “The oil prices have been stable below $80 a barrel since the end of November as there haven’t been any major disruptions in the physical market.”
However, if the conflict bottles up the Suez canal for long – or other sources of fuel to Europe decreases – there could be a “dramatic” increase to prices, he warns.
Over the last weeks, 350 ships have been forced to reroute around the Cape of Good Hope in South Africa.
The southern end of the Red Sea – the Bab al-Mandab Strait – would normally carry roughly 12 per cent of the world’s seaborne oil and 8 per cent of its liquefied natural gas (LNG), according to the US Energy Information Administration.
But faced with the soaring risk of ships being stranded or crews killed, the situation has made the narrow strait – also known as the Gate of Tears – a no-go zone for many vessels.
While the events present additional risks and add time and costs for shipping companies, the rerouting option means they are still able to supply fuel to the European market.
A surprise surge in American oil and gas production and exports is also helping to keep the world stocked, said Luke Bosdet, lead spokesperson at AA. In addition, the increasing amount of electric vehicle ownership in the UK is offsetting petrol and diesel demand.
“Roll back 10 or 15 years and what is happening in the Red Sea would have sent oil prices through the roof,” he said, adding that he expects the prices to hit a plateau going forward.
During the crisis, oil prices have been relatively stable. Brent crude, the international benchmark, has been below or around $80 a barrel since the shipping emergency unfolded.
However, a wider conflict could close crucial waterways for oil transportation and disrupt trade flows. “Although supply has not been affected, everybody is keeping their fingers crossed,” said Mr Bosdet.