Oil Prices Hit Four Year Low

Brent crude oil prices plummeted below $60 a barrel, marking a significant drop not seen since April 2021. The decline has been attributed to widespread fears regarding a slowdown in global demand, exacerbated by ongoing trade tensions. On Wednesday, prices fell by as much as 5.2 per cent to hit $58.46 a barrel, only to reverse losses later in the day following adjustments in trade policy by President Trump.

Earlier in the month, the price of Brent crude had already been under pressure due to expectations that the Opec+ alliance would increase output more than previously anticipated. Eight member nations, including Saudi Arabia and Russia, committed to boosting production by 411,000 barrels per day starting in May. This move contradicted previous expectations of a modest increase of approximately 135,000 barrels per day.

Analysts have responded by cutting their price forecasts for Brent crude for the third time within a single week. Goldman Sachs has projected an average price of $58 a barrel by the year’s end and a further dip to $51 by the close of the next year. Morgan Stanley echoed this sentiment, lowering their quarterly price projections to $65 for the second quarter and $62.50 for both the third quarter and final quarter.

These downward revisions stem from the compounded effects of higher-than-expected trade tariffs and the accelerated increases in Opec+ quotas. In a worst-case scenario, Bank of America’s Francisco Blanch suggested that Brent crude prices could potentially drop to $50 a barrel should geopolitical tensions escalate.

The reduced oil prices are expected to reflect on consumer fuel costs soon. Simon Williams, head of policy at the RAC, indicated that falling wholesale fuel costs will create pressure for retailers to adjust pump prices downward. With crude prices trending at their lowest since the onset of the pandemic, retailers are anticipated to begin slashing prices in the coming week.

Despite this positive prediction, some analysts caution that seasonal trends could temporarily impede the fall in pump prices. As the American summer driving season approaches, gasoline demand typically escalates, which could counteract the anticipated reductions.

Economic factors also play a role; increases in national insurance contributions and the living wage may cause retailers to hesitate in passing on savings to consumers. As such, the full impact of decreasing oil prices on pump prices may take additional time to materialise.