Hard-pressed UK consumers look set to be hit by further increases in fuel costs in 2011 after the price of crude oil touched its highest level for more than two years on London's futures market yesterday.
The rise in the price of crude oil is being driven in part by comments over the weekend by the Arab group within the Organisation of the Petroleum Exporting Countries, which said that all its members were unlikely to meet until June to discuss quotas.
In London, Brent crude oil futures jumped by 44 cents to $94.21 (£61.25) a barrel – a 26-month high – on the futures exchange in early trading. While it eased back later to $93.98 following further reaction to China raising interest rates on Christmas Day, the pressure on oil prices appears to be heading in only one direction.
On the prospects of this upward movement pushing UK petrol prices higher, an AA spokesman said: "It is absolutely blinking horrible news for motorists." He added that even without any increase driven by world markets, UK motorists face a 0.76p rise in fuel duty – upon which they also pay VAT – on 1 January. Three days later, petrol prices will rise higher when the actual rate of VAT goes up from 17.5 per cent to 20 per cent. Oil prices are up by almost 30 per cent since September, pushing up both pump prices and wholesale gas costs, having hit a low of around $40 a barrel at the end of 2008.
The worry among economists is that higher oil prices – which hit both the fuel industry and the household gas and electricity sectors – will further drive up inflation and hamper the global economic recovery. According to the AA, the cost of unleaded petrol is now at a new record high of 123.26p a litre, up 14 per cent on a year ago.
The price of a litre of diesel is 127.47p, but this is still below a high of 135p in 2008. The AA spokesman said it was unclear whether the recent spike in oil prices was a long-term trend or if it was being driven by "short-term speculators in the market". The futures price of light sweet crude for delivery in February fell by 59 cents to $90.92 a barrel in early trading on the New York Mercantile Exchange yesterday, reflecting concerns over a dip in demand for fuel in China after the country's interest rate rise at the weekend.
Soaring petrol prices come at a bad time for UK consumers, who are battling inflation of 3.3 per cent. Three weeks ago, Npower became the latest of the "big six" energy providers to increase its prices – taking electricity and gas tariffs up by an average of 5 per cent in the new year – following similar increases from British Gas, ScottishPower, and Scottish and Southern Energy in recent weeks. According to Asda Income Tracker, transport is the "main contributing factor putting downward pressure on family spending power", giving families £174 per week to spend in November, down £6 on last year.