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Low petrol prices could be indicating the start of a new global recession, warns business expert

UNIVERSITY NEWS LAST UPDATED : 15 JANUARY 2015
petrol

“Many countries will be unable to balance their budgets because of oil currently trading at such a low price”, said Birmingham City Business School’s Dr Steve McCabe.

With crude oil prices continuing to fall, consumers are set to benefit, as the downward pressure on the price of petrol at the pumps continues.

Asda, Morrisons, Sainsbury's and Tesco have all reduced the price of a litre of petrol and diesel by a further 2p. At Asda this means that drivers will pay no more than 103.7p a litre on petrol, and 110.7p a litre on diesel. The cuts came as one garage in Birmingham announced it was now selling petrol at 99.7p a litre.

“Oil prices continuing to fall suggests that global demand is declining, particularly in developing countries such as China. Less than £1 a litre for petrol is probably about right but it won’t persist in the longer-term. Drivers should make the most of it.

“The declining demand for oil by emerging nations suggests that we may be about to enter a new global recession. As US fracking companies increase their production and supply of oil and gas, the market reduces prices.”

Steve warns that though there may be temptation to believe that the drop in oil prices means an immediate benefit from lower fuel costs, there are negative aspects such as lower inflation and economic growth. A significantly reduced oil price will have a negative impact on revenues collected meaning that the chancellor will have less income, thus negatively affecting us all.

Further comments can be found on Steve’s blog What does the price of oil really tell us?.

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