Falling oil prices provide relief to UK households, but living standards are set to fall sharply again Business News

British households finally got some positive news on the cost of living on Thursday after two weeks of sharp rises in oil prices.

Today, oil prices stabilized below $120 a barrel, after recent surges drove up the cost of filling gas tanks across the country.

A major oil supply disruption as Russia stepped up its bombardment of Ukrainian towns had driven petrol and diesel prices to new record highs almost daily, adding to the pressure facing UK consumers .

Experts said upward pressure on oil prices had eased after the United Arab Emirates signaled it would push other oil-exporting countries to increase production.

Analysts shelved their more pessimistic forecast for oil at $200 a barrel and said lower prices could provide respite for struggling consumers, although any change in wholesale prices will take a few weeks to ripple through. British forecourts.

This means petrol could briefly hit £1.80 a liter before falling again, according to estimates from consultancy Capital Economics.

Question marks also remain over how much and how quickly Middle Eastern oil exporters can fill the void left by Russia, the world’s second-largest crude exporter.

“Lower oil prices, lower energy prices benefit Europe in the UK because we are net importers of energy,” said Neil Shearing, chief economist at Capital Economics.

“Europe is certainly better off with oil at $118 a barrel – as it is today – than it was when oil was at $140.”

He added: “If things stay where they are now, the pressure on living standards will be less acute.”

However, he warned that living standards are set to take a further hit from gas prices which are set to remain stubbornly high as Europe goes through the economically painful process of weaning itself off Russian gas.

Natural gas has more impact on household budgets because the costs of other energy sources generally follow the market price of gas.

Giovanni Staunovo, oil strategist at UBS, warned that oil prices will remain volatile and could rise further. A recent announcement by the UAE’s energy minister that it would support higher oil production levels may not keep prices low for long, Staunovo said.

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Only Saudi Arabia and the United Arab Emirates are thought to have a significant amount of spare capacity and this can only cover a fraction of the amount that Russia typically exports each day.

Oil-consuming countries should continue to ease upward pressure on prices by releasing more of the strategic reserves they hold.

“All of these measures will result in reduced spare capacity and strategic stocks, making the oil market even more susceptible to further supply disruptions,” Staunovo said.

“At the end of the day, prices may have to rise even more,” he said. “It would destroy demand and bring it down to available supply.”

This would mean higher inflation for households. Capital Economics recently raised its consumer price inflation forecast, predicting that rising energy bills will push the cost of living indicator to 7.3% in October.

At KPMG, inflation peaks at 10%, which would mean a steep pay cut in real terms for millions of people in the UK.

Energy consultancy Cornwall Insight predicted on Thursday that the energy price cap will rise to nearly £3,000 in October due to high wholesale gas costs.

Gareth Miller, chief executive of Cornwall Insight, urged the government not to jeopardize its drive to achieve net zero emissions as energy bills are now high.

He said: “We must find the balance between the pragmatism that the current geopolitical situation demands and a resolute commitment to deliver net zero and an affordable and secure energy future that future generations will undoubtedly expect in the long term. .”

Boris Johnson indicated this week that the government was seeking to increase the amount of gas extracted from the North Sea in a bid to reduce the UK’s dependence on imports.

Energy analysts and environmentalists have questioned the effectiveness of this approach, pointing out that private companies extracting gas from the North Sea sell it to the highest bidder, so it is not necessarily kept in the UK.