Page last updated at 21:17 GMT, Friday, 10 October 2008 22:17 UK

Brown demands petrol price cuts

Gordon Brown: 'We've had some success in getting the price of oil down'

Gordon Brown has called for the recent falls in the price of oil to be passed on to UK consumers.

The price of oil has plummeted - from a high of $147 a barrel for US light crude this summer to $77.99 on Friday.

The prime minister said: "I want these price cuts passed onto the consumer, and passed on as quickly as possible."

The price of oil has been falling due to increasing concerns that the economic slowdown will lead to a fall in global demand for the commodity.

Price cuts

Already, some supermarkets - from whom other fuel retailers take their lead - have cut prices.

Oil price graph

Tesco announced on Friday it was cutting petrol and diesel prices by 3 pence a litre, with immediate effect. Asda cut its prices by a penny last week.

Morrisons has cut prices by five times since July, with the latest drop just last week, a spokesperson said. "When the cost of crude oil and refined product falls, we pass the benefits on to our customers as quickly as possible," the company said.

"Asda has been the real trail blazer [in reducing prices], with Morrisons to a lesser degree," said Luke Bosdet, spokesman for the AA, adding: "Reductions in the price of oil are not passed on as quickly as they could be."

Ray Holloway, director of the RMI Petrol Retailers Association, suggested that it is the prime minister himself who makes the real difference to prices. "Gordon Brown always has the ability to reduce fuel prices through a fuel tax reduction, but avoids it," he said.

Demand 'slow'

The prime minister's statement comes on the same day that the International Energy Agency (IEA) cut its forecast for oil demand growth to its lowest level for 15 years.

Although non-OECD slowdown is also likely, it is by no means certain that growth will be choked off altogether
International Energy Agency

It cited economic weakness and "a liquidity crisis" as the reasons.

The IEA has reduced its 2008 forecast by 250,000 barrels per day, to 440,000 barrels, and its 2009 estimate by 190,000, to 690,000 barrels per day.

US light crude was down $4.09 at $82.53 a barrel on the news while London Brent crude fell $3.84 to $79.18 a barrel.

Lack of liquidity

The Paris-based agency blamed global economic weakness and, in particular, the lack of liquidity in world markets resulting from the current financial crisis, for the drop in demand.

The impact of this weakness, it said, was being felt most acutely in developed countries, with developing economies showing "a degree of resilience".

"Although non-OECD slowdown is also likely, it is by no means certain that growth will be choked off altogether. We have yet to see unambiguous evidence of a sharp slowdown in China, while Middle Eastern demand growth remains robust," the agency said.

Falling demand among developed economies has seen the price of oil fall dramatically from its summer highs. US light crude hit a June high of $147 a barrel.

Supply lines

The IEA said the credit crisis was also hitting supply, as it made it difficult for companies to raise money to invest in the industry.

"Credit shortages are rapidly becoming yet another in a long line of impediments to industry investment," the agency said.

Oil producing cartel Opec agreed in September to strict output targets that have so far reduced output by 300,000 barrels a day, "largely due to unplanned outages", according to the IEA.

Global oil supply fell by 1.1m barrels a day in September.

However, it is in the interests of Opec to cut supply in order to put upward pressure on the oil price. If supply falls sufficiently, then oil prices will stabilise.

Opec has called an extraordinary meeting on 18 November in Vienna to discuss "the global financial crisis, the world economic situation and the impacts on the oil market."

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