Diesel less than Petrol?

Diesel Pump
Diesel Pump

Recently diesel prices in the UK have fallen below the price of petrol. In the South East diesel costs 111.9p a litre vs. petrol costs of 113.9p a litre. Diesel hasn’t been cheaper than petrol since 2001 (source).

Although it’s interesting that diesel has fallen below petrol, the overall fall in fuel prices is a phenomenon in itself. There is a current supply glut in oil; from fracking in the USA (source), which is becoming more efficient as prices fall, to reducing sanctions in iran causing price falls in anticipation of higher exports (source), the introduction of supply from kurdistan (source) and the reduction in global demand of oil, with China being the biggest result of a reduction in demand, as GDP is growing at half their century peak (7.42% 2014 vs. 14.9% 2007 – source).

The weakness in oil shows two things: the unwillingness of countries to reduce their supply of oil and global demand is low. America keeps supplies high, as it is a strong and useful political tool; individuals have big cars and big houses, low fuel prices goes straight to the individual and increases others consumption expenditures. Saudi Arabia is playing a game with America, they can produce oil as low as $5 a barrel and are willing (some say even trying) to price the fracking businesses out of the market.

The other important message is that global demand is low. Companies are ordering less oil and this is creating a supply glut. Oil demand correlates strongly to economic growth, especially the G7 (source) and therefore could indicate that the global recovery is not as strong as hoped. In fact EU GDP growth figures show +0.3% QQ GDP growth today, not particularly eye-raising considering QE’ing programs.

Nonetheless it is great feeling for individuals to see fuel becoming more affordable in the UK. However when it sinks in that an SUV costs $30 to fill up in the USA, you know we’re still missing out.

@Breadeconomics

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