Motorists face £4 gallon

MOTORISTS were warned last night to expect hefty petrol price rises after the cost of oil reached record highs on both sides of the Atlantic.

The surge in the oil price - caused by fears of a global shortage - raises the spectre of the £4 gallon at the pumps by the time of the General Election, experts said.

Petrol retailers said drivers should expect to see between 5p and 10p a litre - between 23p and 45p a gallon - on the cost of unleaded by polling day, expected to be May 5.

Volatility in the oil market led Chancellor Gordon Brown to freeze duty on fuel for six months in Wednesday's Budget.

But motorists pay roughly 80p tax on every £1 they spend on fuel at the pumps and will face a 1.22p a litre tax rise - 5.5p a gallon - when the duty increase does arrive.

Although that will not be until September 1, unleaded has already increased by 1.5p a litre to 81.5p in the past fortnight as the pressure on crude prices has increased. That is a rise of 7p a gallon to £3.70. Diesel is around 85p a litre, or £3.86 a gallon. The predicted pump rises would see fuel selling close to or even over £4 a gallon - 88p a litre.

The warnings came as the cost of crude oil in New York broke $57 for the first time yesterday to hit $57.50. In London, the price of Brent crude topped $55 a barrel for the first time, then soared to $56.15.

The rises were sparked by reports that America's oil reserves are far less than expected - raising fear of shortages that will drive up the price even further as the main American summer driving season approaches.

Huge demand from industrially-booming China is adding to pressure on prices. Ray Holloway, of the Petrol Retailers' Association, said: 'I think we are looking at a minimum of 5p a litre - or nearly 25p a gallon - at the pumps by the time of the election.

'But if the doom-mongers are right and there are other crises which drive up the price of crude even more, we could be looking at 10p a litre or around 45p a gallon. That is not unreasonable. It's the Doomsday scenario.'

He added: 'There is good reason to believe we will have a General Election where the oil price hikes are pushing through to higher prices at the pumps. The Americans will panic that they won't have enough petrol and start buying heavily on international markets. That will push up the price even more.'

Opec agreed this week to pump an extra 500,000 barrels a day and pledged yesterday to double that if prices remain high - probably above $55 - for the next seven to ten days.

Many experts are sceptical whether that will be enough to dampen the big increases in demand. However, last night oil prices had slipped back from their record highs in both London and New York.