Oil prices have fallen sharply after a key OPEC member called for more oil to be brought to market. Prices have plummeted as much as 17 per cent with oil now down to just over $115 (£87.27) a barrel, compared with recent highs of over $130 (£98.66).
The slump comes after an intervention from the United Arab Emirates (UAE) who have called on the Organisation of Petroleum Exporting Countries (OPEC) to boost supplies. In a statement the UAE's ambassador to Washington Yousef al-Otaiba said: “We favor production increases and will be encouraging OPEC to consider higher production levels. The UAE has been a reliable and responsible supplier of energy to global markets for more than 50 years and believes that stability in energy markets is critical to the global economy.”
Why has the price fallen?
Oil prices had surged since the start of the Ukraine invasion with fears mounting of disruption to supplies from Russia, which provides around seven percent of global supply. Russian oil has since been further cut off from the world economy following the announcement of bans on imports by the US and Canada.
The UK has also committed to phasing out Russian oil by the end of the year. This has left countries with a key question of how to fill the gap left by Russia's oil exports with US President Biden continuing appeals to OPEC to increase production.
While now under greater pressure due to Russian sanctions, the issue of OPEC production is not new with the cartel having so far struggled to meet quotas designed to boost production after the pandemic. While much of the world was in lockdown and demand was lower, OPEC cut production but has since promised to unwind these cuts with targets to increase production by 400,000 barrels a day.
A number of members however have failed to meet their quotas, keeping supplies under pressure even before the Ukraine crisis. So far calls from the US have made little impact with OPEC Secretary General Mohammed Barkindo this week saying there was "no capacity" to replace the seven million barrels per day usually produced by Russia.
Will this mean lower fuel bills?
The extent to which retailers can discount the price of fuel is dictated by a number of factors. The supply of new sources of oil and world events can have an effect, but market forces play a dominant role in how much customers pay.
The price of fuel can be divided into three sections the cost of the fuel itself (which is made up of the wholesale price, the cost of distributing the fuel and fuel companies’ profit margins); fuel duty (which is charged at a fixed rate of 57.95 pence per litre); and VAT. VAT is charged at 20% of the wholesale price plus the duty, which equates to 16.7% of the final price.
Under normal market conditions, only a fraction of the cost of a litre of petrol ends up in the coffers of fuel retailers. It is also true that while retailers are quick to pump up prices, it does take them longer to lower them
