Crude Prices at Record Low: Would It Be of Any Help to British Consumers?

The historic lows of Crude oil prices are unlikely to benefit the average British consumers. Even though very few, if any would be coming out of their houses to enjoy a ride but it has definitely instigated several consumer groups to demand petroleum retailing companies to go for a price cut. The retailers and the refiners are, however, facing problems of their own and are inclined more towards protecting their bottom lines, which are certain to hit bottoms due to the weak economic conditions. The coronavirus pandemic has brought down transportation sector activity to a standstill all across the globe. This has resulted to an unprecedented pricing situation in the crude oil market where crude producers are pumping oil at an unabated pace, but refiners are refusing to take delivery due to negligible utility and slow movement of finished stock. On 20^th April 2020, an unprecedented situation occurred when the WTI crude futures with Tuesday expiry started to trade in negative territory, while the very next day the Brent crude prices touched its 18 years low. In the United Kingdom, the current wholesale price of petrol which had been hovering around £1.1 is likely to fall down to 98 pence.

The pandemic situation is weighing severely whether it’s the government or be it the average consumer, the gasoline and diesel retailers, the refiners, or the crude oil producers. In the past three months, the business activity levels in the world have declined significantly. The industries who are wholesale users of fuel oils have been facing the maximum brunt of the economic fallout of the pandemic, the airline industry is in complete doldrums, the industry which is being blamed for the rapid spreading of the disease across the world, is now at a complete standstill, in the civil aviation except for and a few flights that are going in and out on humanitarian duty and on military duty all other aircrafts have been grounded with a lingering uncertainty on how long, before the full-fledged aviation activities in the world would fully be restored. Similar is also the case with the cargo shipping and the luxury cruise industries who are witnessing their businesses coming down significantly during the past few months. In surface transport, train services have also been suspended; bus transport is also grounded on account of the lockdown conditions let alone the plying of personal vehicles. Speaking on behalf of the retailers RAC motoring group stated that the fuel retail companies are already bearing the brunt of extreme slowdown in sales, in such circumstances whatever benefit is coming to them on account of lower wholesale prices, if they pass on to the consumers, would lead to a very difficult survival situation. The group also stated that the uncertainty of the lockdown situation and the uncertainty regarding the time period till when the low wholesale oil prices will continue, also makes it very difficult for the retailers to take any call on their margins. The situation at this time is very critical for small retailers and for retailers in far-flung and semi-urban areas who are facing a treat of bankruptcy compared to the larger ones, who have deep pockets and would be able to sustain their operations for a longer period of time.

A similar situation has also arisen with the utility services providing companies in the United Kingdom. The lockdown conditions in the country and the halt in manufacturing and trading activity all across has ensured that the commercial demand for gas and electricity got shrunk significantly, leading to a massive fall in their wholesale prices. While the price of one thermal unit of gas was priced at 58 pence in January 2019, the prices fell to 28 pence in January 2020. Since the arrival of the pandemic in the country, prices have still slid further to be trading at a ten-year low figure of 17 pence per thermal unit. Should the benefit of this price fall be extended to the consumers, this could mean a forty per cent reduction in their energy bills. However, most of the utility majors in the United Kingdom have been showing reluctance to pass on the benefits of a fall in wholesale gas prices to their customers. One of the major reason for that is the government contingency regulatory measures enacted to protect citizens due to the adverse impact of the pandemic, which ensures that people whose earnings have suddenly stopped because of the pandemic are not deprived of their basic amenities like gas and electricity. Particularly in the case of some of the largest utility companies in the United Kingdom which serve hundreds of thousands of households, cutting down on supplies of utilities on account of non-payment of dues, would almost certainly invite the ire of the government. The consequence thus would be that these companies stand the possibility to lose massive revenues streams on this account. Hence it would not be possible for these companies to pass on whatever benefit they get from the backend and no choice but to adjust this benefit of fall in gas and electricity wholesale prices to the losses that they anticipate to sustain so that some of these future losses may be adequately covered.

The situation, however, works to the advantage of the sector in terms of lowering their carbon footprint and would go a long way in fulfilment of their carbon emission goals. The whole country has a long term commitment under the European regulations to reduce its carbon footprint on a long term basis; this is the best opportunity that the companies in the energy sector should avail of, to champion that causes and take a step forward in the economic, industrial and technological development of the country.

The best solution at this time for all the concerned sides will be to find an early resolution to the pandemic which has currently crippled the economy of the country. In finding an early resolution the business activity levels will also recover early, and the concerns of hundreds and thousands of employees who are facing the immediate threat of employment across all verticals of the energy sector will be put to rest. In the meantime, all citizens and businesses of the country would have to wait, holding their breath for the dust to settle on the pandemic.