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Pump prices back on the rise: AA warns surging oil will push petrol above 110p a litre imminently

Average petrol price up 1.88p to 109.21p per litre in the last month
Diesel has jumped 2.19p in the same period to 109.10p, the AA said
Investment banks said barrel prices are nearing $50 due to Canadian forest fires and supply disruption for the oil market

Published: 07:58 GMT, 21 May 2016 | Updated: 08:52 GMT, 21 May 2016

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Any hopes of petrol prices stabilising after two and a half months of rises have been all but quashed by a new report predicting that oil will soon reach $50 a barrel.

The AA's Fuel Price Report for May warned the continued surge in the world oil price, which has already pushed petrol prices up to 109.2 pence per litre, will result in increasingly expensive fuel in the near future.

Since mid-April, the average price of petrol has risen 1.88p, while diesel is up 2.19p over the past month, now averaging 109.10p per litre - compared to 106.91p in mid April.

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Petrol prices set to breach 110p per litre: The AA said surging oil prices have had an impact on wholesale prices and will continue to be passed on at the pumps

The wholesale petrol prices added a further 2p in a week prior to their latest report, increasing from the 27p a litre mark from the beginning of last month, the AA said on Saturday.

Retailers will now look to pass on the additional costs at the pumps, potentially pushing petrol above 110p per litre if oil prices continue to escalate.

This compared to the year's low point of 101.65p on 3 March, meaning that drivers are now 7.6p a litre worse off than two and a half months ago.

The AA says a family with two petrol cars in its fleet will now have to pay £15,20 extra in monthly fuel bills. It's the same story for diesel, which had previously hit a 2016 low of 100,78p a litre on Valentine's Day.

Currently sitting at 109.10p, the 8.3p hike since mid February has added £6.64 to the cost of filling a Transit-size van.

This pump price-rise is partly due to less generous supermarket prices, the AA claimed, with pump prices at Asda, Morrisons, Sainsburys and Tesco forecourts up 2.2p a litre in a month compared to 1.9p among non-supermarket retailers.

WHY ARE OIL PRICES ON THE RISE?

Oil has jumped $5 a barrel in the 10 days leading up to the AA's May Fuel Price Report, ratcheting up the 70 per cent surge since oil fell to the $27-$28 in late January.

Investment banks blamed Canadian forest fires, the impact of unrest on Nigerian and other supply disruption for the oil market making a ‘surprise’ turn from glut to production shortfall.

This contradicted last Thursday’s International Energy Agency’s Oil Market Report which also highlighted Iran’s oil exports jumping from 1.4 to 2 million barrels a day and “further oil price rises - likely to be limited by brimming crude oil and products stocks that will remain a feature of the market until more normal levels of inventory are reached,' according to Goldman Sachs.

However, with supermarket diesel prices up 1.8p per litre since mid April compared to 2.4p among other retailers, the 106.31p average price of supermarket diesel is significantly better than their rivals' 109.90p average.

Speaking about the latest report, AA president Edmund King said: 'Compared to this time last year, petrol is still 6.5p and diesel 11p a litre cheaper.

'However, that's not the point. UK drivers do not like pump price shocks and a £4-£5 surge in the cost of a tank of fuel is enough to disrupt family and business budgets.

'What has happened since March has re-energised fears of rocket and feather pump prices – something the UK motorist hoped had gone away for a long while.

'Oil and fuel commodity market players have this week gleefully predicted a 'rebalancing' of the oil market. They thrive on price volatility, drivers and businesses don't.'