Supermarkets cut fuel prices

Supermarket customers will benefit from a price cut at the pumps

Supermarkets have slashed their fuel prices as a result of a worldwide plunge in oil prices in the wake of the terror attacks on the US.

Safeway, Tesco and Sainsbury's said they would cut 2p-a-litre off unleaded petrol prices.

Demand has collapsed because people are in fear and are staying at home and locking their doors

Oil analyst Bruce Evers

The move follows a collapse in price of a barrel of oil from US$27 before last month's atrocities, to US$21.50.

Safeway was the first to move at 1500BST on Tuesday, with a 2p-a-litre cut on fuel in its 173 forecourts nationwide.

The retail chain took the average price of unleaded to 71.9 per litre, making it 10% cheaper than this time last year.

Rivals Tesco and Sainsbury's pledged to match the cut on unleaded petrol at midnight on Tuesday.

'Knock-on effect'

Oil analyst Bruce Evers of Investec said the slump in demand is the knock-on effect of a general loss of confidence in travel, particularly in the US.

He said: "Demand has collapsed because people are in fear and are staying at home and locking their doors."

Opec has been warned against cutting output

Mr Evers said the drop in demand for aviation fuel because people are not flying in the current political climate has forced oil suppliers to drop their prices.

He added that the bombing of Afghanistan had not caused disruption to oil supplies because none of the producing countries have been affected.

"The oil is still winging its way from markets and it should keep on coming.

"However, if Iraq is bombed there may be problems," he said.

Production speculation

But as the international price of oil continues to fall, speculation is growing that the Organisation of Petroleum Exporting Countries (Opec) will move to reduce levels of production.

The cartel is due to meet in mid November to consider whether to change levels of production, though it could decide to act before then.

The oil exporters have recognised that, while demand is falling, any decision to shore up prices could prove politically sensitive.