Crude oil has dropped below $100 a barrel again, as President Trump claims ‘it’s very possible’ the US and Iran will agree a peace deal.
Brent crude oil was down around three per cent today at $98 a barrel after hitting highs of near $115 in the past five days with optimism growing the Middle East conflict could come to an end.
It was the first time oil has fallen below $100 a barrel since 22 April.
However, this change hasn’t yet hit the pumps, with the RAC Fuel Watch reporting the average price of petrol is now at its highest level since 20 April.
On 5 May, petrol was 157.2p a litre, and diesel 188.3p.
Crude oil has dropped below $100 (£73.43) a barrel again as it looks like the US and Iran may find a solution to their conflict
Rod Dennis, RAC senior policy officer, said: ‘It’s too early to tell whether today’s fall in the oil price will translate into lower prices at the pumps.
‘So far this week, we’ve actually seen petrol prices begin to edge up slightly off the back of elevated wholesale fuel prices last week.
‘Only a sustained lower oil price, over a matter of weeks and not just days, will be enough to guarantee drivers pay less when they fill up.’
How do wholesale oil prices affect the cost you pay at the pumps?
The price at the fuel pump takes into account a variety of factors including the world price of crude oil, international exchange rates (refined fuels are sold in US dollars per metric tonne), and global supply and demand.
However, as crude oil is a key ingredient in petrol and diesel, higher wholesale costs will make pump prices rise.
Analysts reckon that a $10 (£7.53) increase in the price of oil pushes up pump prices by roughly 7p a litre.
While pump prices are based on the wholesale cost of petrol and diesel, there’s typically a two-week ‘lag’ between a wholesale move and pump prices reflecting any change as it takes time for fuel to move through the supply chain to the forecourt.
The retail price you pay at the pump includes a hefty amount of tax and VAT which goes to the Treasury.
The current rate of fuel duty sits at 52.95p a litre.
So, as the RAC says, just because the price of oil has dropped below $100 a barrel, don’t expect that to immediately bring petrol prices down.
What could the consequences be for drivers if the conflict isn’t resolved?
The US has reportedly sent a one-page proposal through Pakistan aimed at ending the conflict and gradually reopening the Strait of Hormuz.
Iran is expected to respond in the coming days.
However, it is not yet clear if a viable end to the conflict has been found.
If a solution isn’t found, the RAC has warned that the price of fuel will likely start to rise again, and diesel may do the same if the crisis in the Strait of Hormuz continues.
The price of unleaded has risen 19.2 per cent since the end of February from roughly 133p a litre, while diesel is up 32.1 per cent from 142p. Before the conflict, oil was trading at $75 a barrel.