Global Oil Market Crash: UK Major Supermarket Pumps Cut Petrol Prices To Below £1

The lockdown measures are being actively adopted by almost all the affected nations across the world to halt the spread of novel coronavirus. However, due to this lockdown, the demand for oil has reduced exceptionally. 20th April 2020 was the historical day in the oil industry as the US benchmark oil contract WTI reached minus $37 per barrel, i.e. entered the negative zone for the first time in the history also sending London’s Brent to experience downward pressure.

As per the International Energy Agency (IEA) forecast, the global oil demand is to substantially decline by 26 million barrels per day in May 2020, year-on-year basis. IEA also advised that weaken crude prices could destabilize the strength of the oil industry to advance some of the innovative technology, required for clean-energy transitions across the globe. Besides supply glut, the oil industry more severely struggles through free storage capacity, which is presently estimated at 500-600 million barrels on global level. However, it is expected to be used up by June 2020.

Following the international slump in oil market, three of UK major supermarket pumps- Tesco PLC, Morrisons (WM) Supermarkets PLC and Asda Group Limited- have reduced their petrol prices to less than £1 a liter. On 11th May 2020, Morrisons declared that at its petrol stations, nothing would be charged more than 104.7 pence a liter for diesel and 99.7 pence a liter for petrol from the vehicle users. Tesco PLC similarly stated that it would reduce cost of unleaded petrol up to 99.9 pence a liter and 105.9 pence on diesel across its 500 outlets. Asda Group also joined the cost cutting initiative in order to help the country during the time of the pandemic coronavirus crisis and reducing the oil cost for the ones returning to work.

Head of Fuel at Morrisons Ashley Myers stated that this reduction would support those people who are coming back to work as well as those who have come out for purchasing essentials products, or to support the senior citizen and vulnerable citizens.

London’s benchmark Brent Oil Futures is trading at around $30.12, up 1.65 percent, in early trading hours on 12 May 2020. Brent Crude entered 2020 nearly at ~$64 ((£51) per barrel but by the end of April 2020, the price plunged below $19 (£15.40) per barrel. There has been a steep decline in international oil prices touching the historical negative level on the back of Russia-Saudi Arabia price wars, leading to excess production and supply glut. In addition, lack of storage capacity has been another major factor of oil price crash during the times when oil demand has fallen drastically, especially for transport fuels, due to coronavirus- induced lockdowns.

RAC representative, Simon Williams said that Prime Minister Boris Johnson speech on Sunday has given hopes of lockdown easing, which means people can move out and take their vehicles on road. In such a scenario, a lead taken by Morrisons in oil price cut is appreciable and reflects that retailers are ready to pass on the benefit of lower oil prices to their consumers.

However, not many would be benefitted from petrol price cut as the UK government maintains strict lockdown measures in place with easing in just few specific areas. Department for Transport data recently reported that traffic of road has declined approximately 58 per cent compared to the figures in early February 2020.

The broader oil industry, moreover, continues to hold its optimism with the hopes to witness significant rise in oil prices in the next 6 months based on lockdown easing in phases across the world. To provide further strength to oil prices, many major oil players have been cutting down their productions to withdraw oversupply from the market.

Let’s take a look at Tesco, Morrison Supermarkets, and ASDA Group Limited:

Overview of Tesco Plc (LON:TSCO)

Tesco Plc is a biggest petrol retailer in the United Kingdom. It is a supermarket giant that deals in diverse range of products available both at offline and online stores. The company employs around 0.45 million staffs and is operating in many countries such as the Republic of Ireland, Hungary, Poland, Slovakia, Malaysia and the Czech Republic etc.

The share price performance of Tesco Plc – The stock of the company is trading at GBX 244.20 on 12th May 2020 (at around 09:52 AM) on the London Stock Exchange. The stock increased by GBX 6.10 or 2.56 per cent today. The company’s stock achieved a 52-week high price of GBX 260.40 on 26th December 2019 whereas, the company’s shares posted the lowest price of GBX 203.70 in the last one year on 23rd March 2020.

Overview of Asda Group Limited

Asda Group is a British supermarket retailer that had been acquired by American multinational Walmart in 1999. Headquartered in West Yorkshire, Asda operates in a range of businesses that include supermarkets, superstores, petrol filling stations, supercentres, living stores, and maintenance yard throughout Britain.

It was listed on London Stock Exchange until acquired by Walmart in 1999. However, Asda is expected to make a comeback on LSE but could take a few years, confirmed Walmart.

Overview of Morrison Supermarkets Plc (LON:MRW)

Established in 1899, Morrisons have covered their from Bradford market stall to becoming the UK’s 4^th largest supermarket chain now. The company’s core business is into fresh food and grocery with over 500 stores, an online delivery services and manufacturing facilities in place.

The share price performance of Morrison Supermarkets Plc – Morrisons joined the FTSE 100 for the first time in April 2001. The stock of the company is presently trading at GBX 194.45 on 12th May 2020 (at around 10:17 AM) on the London Stock Exchange. The stock increased by GBX 5.70 or 3.02 per cent today. Its stock achieved a 52-week high price of GBX 209.81 on 15^th May 2019 whereas, the company’s shares posted the lowest price of GBX 157.55 in the last one year on 17th March 2020.