Petrol pump prices to dip even as crude oil soars above $50 a barrel

The cost of petrol in the UK will fall next month even if oil prices hit $50 a barrel, according to Ray Holloway, the director of the Petroleum Retailers Association.

The cost of petrol in the UK will fall next month even if oil prices hit $50 a barrel, according to Ray Holloway, the director of the Petroleum Retailers Association.

Retailers are likely to cut prices at the pumps in September as the period of peak demand for petrol comes to an end, he said. This will provide a brief respite for motorists who have been enduring prices above 80p per litre.

Although analysts said oil could break the psychologically important $50-a-barrel mark this week, it takes four to six weeks for higher crude prices to feed through to the pumps, Mr Holloway said. That means that petrol prices will start rising again later this autumn.

Kevin Norrish, an analyst at Barclays Capital, said he sees little reason to expect oil prices to fall soon. "It does not look unrealistic for oil prices to hit $50 a barrel as early as this week. I do not see why the trend of rising prices should change in the short term. The one thing which would stop prices rising would be evidence that consumers are finding prices too high. There is no sign of this happening yet."

Demand for petrol is highest in the summer during the holiday driving season in the US. To meet the demand, refiners switch from making winter related products, such as heating oil, to producing petrol.

But US petrol prices fell 4.2 per cent in July, it emerged last week, suggesting it is not in short supply. UK petrol prices are influenced by American prices. During a shortage in the US, refiners buy spare capacity from Europe, driving up demand and vice versa.

Mr Holloway said: "It may be that oil companies will be sweating more than motorists. Motorists should see petrol prices fall in September."

It comes as Opec gave its clearest signal yet that it would raise its price band for oil prices in a belated recognition that higher oil prices are here to stay.

The organisation of oil producers set a target price range of between $22 and $28 per barrel in 2000, with the intention of increasing production if prices go above the range. But Opec's benchmark oil price has been above this level for over six months.

Opec is holding its quarterly meeting next month. Spokesman Abdul Alkhereigi told The Independent on Sunday that Opec will change the target range. "My guess is that it will go to $25-$30 or $26-$32 per barrel.

"Our ministers realise they need to revise the price band, particularly given the changing value of the dollar. Things have changed since we created the price band. We need to adapt to a new, changing environment. It's the right time to discuss it before it gets out of control."

The first talk about raising the band came at the end of last year, he said, but the recent surge in oil prices has forced the issue.

"The band does not stand up to the test of time. Among oil ministers and members there is a realisation that something needs to be done."

John Butler, an economist at HSBC, said changing the price band would raise the floor on oil prices. "More and more people are coming to the view that oil prices are permanently higher," he said. "Opec is not having a huge impact on where prices are at the moment."

The main reason for higher oil prices was a stronger than expected global economy, Mr Butler said. Fears of a supply disruption, such as a terrorist attack in Saudi Arabia, add a large risk premium, he said.