Monday, 5 January 2015

Why Are Petrol Prices Falling?

Why are we writing about fuel prices on the QVM traders blog? Discretionary consumer spending is at risk from a lot of factors and the amount our customers have to spend on energy has significant impact. The less our customers have to spend on fuel, the more they can spend with us.

And the fall in petrol prices is significant. Prices of $1.50 per litre were common 6 months ago and today we are down to $1.10 per litre which probably translates to a saving of $10-$20 per week for many motorists. And maybe that makes a trip into QVM a little more palatable for shoppers.

So, why are petrol prices falling and, more importantly, how long will this last. Essentially, the industry is experiencing over supply. A lot of smaller producers have come into the market over recent years and they are contributing to excess oil so the price is dropping as producers scramble to maintain their share and their production levels. Shale oil producers in the US are a good example of new production. The cynics would suggest that the big oil producers are deliberately reducing prices to squeeze out the new smaller operators who have significantly higher production costs, but we don't claim to be experts on these matters.

Suffice to say, the fall in petrol prices is welcome for many reasons and it would appear that it will be maintained for some time, perhaps even a couple of years. But we are just a humble trader's blog so no promises.