Petrol and diesel prices are expected to plummet later this year as Donald Trump’s trade war kills off demand for oil in China.
Rystad Energy, a leading global energy analyst, said “a prolonged trade war” could halve the expected growth in Chinese demand for oil this year and lead to lower prices globally as a result of oversupply in the market.
Mukesh Sahdev, Rystad’s chief oil analyst, said the trade war was poised to reduce China’s GDP growth by about 1pc, causing a corresponding fall in demand for oil.
Combined with overproduction in the Middle East , the downturn in demand is expected to lead to markedly lower fuel prices later this year. Rystad forecast oil could fall below $60 (£45) a barrel, compared to around $67 a barrel today.
When oil prices briefly fell to around $60 a barrel in 2021, unleaded petrol prices went down to between 120p and 125p per litre.
Unleaded petrol averages about 137p per litre, compared with 150p per litre a year ago when Brent crude oil was just under $90 a barrel.
Mr Sahdev said the effects of the trade war on the oil market would be masked for the next few months by the seasonal summer surge in demand for fuel as people across the northern hemisphere fly or drive for their annual holidays. However, he forecast lower pump prices in the late summer and autumn.
Jorge Leon, Rystad’s head of geopolitical analysis, said the summer surge could push oil prices up by $5 for a few months before dropping. He said: “After summer peak demand is over, oil prices will see downward pressure. If the trade war intensifies, Brent could go below $60.”
Other analysts agreed. Ashley Kelty, of Panmure Liberum investment bank, said: “A longer-term decline through 2025 looks likely as fundamentals suggest oversupply.
“It would mean some reduction in prices for drivers, but with the level of tax on petrol so high, it won’t make the big difference to inflation and ‘putting money into voters’ pockets’ that Labour keep claiming.”
Greg Newman, the chief executive of London-based Onyx Capital, whose oil trading arm is the largest global market maker by volume, said: “Trump’s tariffs led to a sharp downward move in oil prices.
“Longer term, we still have a market with a lot of spare capacity and producers waiting on the sidelines ... We have already seen signs of a pricing war from Opec members and the opportunistic buying we’ve seen lately can’t last forever – so yes, the long term risk is oil below $60, and there for some time.”
Brent crude is currently well below the $87 it was fetching before last year’s US elections. However, prices have been volatile and the turbulent nature of the declines mean fall in wholesale prices has not yet fully reflected in forecourt prices.
Actual forecourt price falls will depend on how other oil producers respond to the slump in demand – especially members of Opec+, the oil cartel covering a dozen mostly Middle Eastern and African countries plus others such as Russia.
“Brent could of course go below $60,” said Dan Slater, of Zeus Capital. “But then Opec+ could reduce its pace of production additions. It’s unlikely that they’d want to see lower prices for very long.”
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