Average petrol pump prices over the past month experienced their third biggest drop in the 25-year history of the AA Fuel Price Report, falling by 6.6 pence per litre (ppl).
The drop rivals the collapse in fuel prices during the credit crunch of 2008.
Since mid-November, the average price of petrol has dropped from 122.93ppl to 116.32ppl, a reduction of 6.61p. Over the past month, the average price of diesel has fallen 5.27p, from 127.43pp to 122.16pppl.
Edmund King, AA president, said: “A 6.6p-a-litre drop in the price of petrol releases a potential £3 million-a-day switch of consumer spending from fuel forecourts to other businesses. It will also lower the cost of transporting goods, hopefully also to be passed on to customers.
“However, the parallels with the 2008 crash, albeit that was a market in freefall while this one has been engineered by OPEC and could be stopped anytime, carry a warning from the ghost of Christmas past. In 2009, a new year brought a new assessment of the market and pump prices started to rise again on January 5.”
The top five monthly petrol price crashes in the last 25 years were :
October to November 2008
106.4p down to 94.9p
Oil at around $65
Caused by the credit crunch.
August to September 2006
98.2p down to 90.3p
Oil at around $63
Caused by the end of the Lebanon conflict.
November to December 2014
122.9p down to 116.3p
Oil at around $60
Caused by OPEC reaction to oil glut
September to October 2008
112.9p down to 106.4p
Oil at around $69
Caused by the credit crunch
July to August 2008
119.5p down to 113.2p
Oil at around $113
Caused by the credit crunch.
With a car being refuelled typically twice a month, monthly petrol costs for a standard 55-litre fuel tank have dropped £7.26.
The cost of diesel for an 80-litre van fuel tank is down £4.22 compared to a month ago.
After a relatively stable petrol wholesale price from mid-October to mid-November, a 2.1pp fall in the last two weeks of November and a significant 6.2p fall in the last fortnight creates the potential for another 2p to 3p-a-litre fall at the pump.
This began with last Wednesday’s (December 17) announcement by supermarkets of an up to 2p-a-litre price cut this week.
When comparing average prices between brands, Asda continues to give a clear 1.5p advantage over its competitors for both petrol and diesel.
At street level, it means that drivers in Asda towns continue to enjoy cheaper prices while supermarkets in other towns charge up to 3p a litre or £1.50 a tank more for their fuel.
National and regional
Across the UK, at an average of 116.1p a litre, the South West has pipped other areas for selling the cheapest petrol.
In contrast, East Anglia’s average is a full penny dearer to make it the most expensive.
Diesel is cheapest in Northern Ireland at 121.8p a litre, with Scotland dearest with an average of 122.7p.
Possibility of £1 litre is remote
The possibility of the average petrol pump price falling below £1 a litre in the near future remains remote.
Fuel duty + VAT alone accounts for almost 70p a litre. A further 5p to 10p for retailer/suppliers margins + VAT, leaves wholesale +VAT needing to be around 20p to 25p.
With wholesale petrol including VAT currently at around 33p a litre, the wholesale price would need to fall at least a quarter for the average petrol pump price to approach the £1 mark – with a further hefty fall in the oil price to help make that happen.
Market experts have told the AA that this would require oil to drop to around $40 a barrel, a third lower than now.