Low fuel prices here to stay predicts expert

January 5, 2015 | By | In News

Fuel prices may traditionally be one of the biggest costs facing motorists, however, drivers can expect to see low prices at the pumps for months to come, predicts one expert.

Despite car owners benefitting from oil prices that have plummeted by around 40 per cent since June, Mohamed A El-Erian from Bloomberg View expects that prices should remain low.

El-Erian told the BBC that there has been a “fundamental shift” in the oil industry, which we can expect to cause long-lasting effects. Leading this change is the fact that Saudi Arabia has decided against cutting oil production to increase revenues. This comes after the gulf nation lost out to rival oil producing countries when it attempted to do this in the past – and as new sources of oil, such as US shale fields now play a bigger role in the industry.

Low prices will lead to the gradual shutdown of what are now unprofitable oil fields and alternative energy supplies, and they will discourage investment in new capacity.

Thanks to a steady supply of oil from Saudi Arabia, the demand for affordable oil should keep prices low, in the near future at least. It will also have an impact on global politics, El-Erian adds: "Low prices will lead to the gradual shutdown of what are now unprofitable oil fields and alternative energy supplies, and they will discourage investment in new capacity. At the same time, they will encourage higher demand for oil."

While oil importing countries will benefit from lower prices, those whose economies rely on exporting oil – including Russia, Venezuela, Nigeria and Iraq – will lose out. The biggest effect on motorists – apart from having more money in their pockets – is that petrol models will be more attractive than pricier diesels in light of smaller differences in the cost of fuelling both.

If you’re fed up with having to visit the petrol pumps discover what you can expect from life with an electric car.

Picture: Kasto

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