Petrol set to fall another 1p a litre

PETROL prices are likely to be cut by another 1p a litre and diesel by 3p as the cost of crude oil continues to fall, industry pundits predict.

With the price of a barrel of oil falling from more than $30 to under $18 since the 11 September terrorist attacks in America, the pressure on oil companies to cut pump prices again is growing. There are even suggestions that the price of a barrel could drop below $10 in a repeat of the 1998 oil crash.

Since the terrorist attacks, the price of a litre of petrol has dropped from 76.9p to 69.9p in some parts of Britain. It first dipped below 70p at the end of last month when supermarkets cut the cost of unleaded to its cheapest for two years.

But Chancellor Gordon Brown will have to cut the current 80p in every £1 he takes in tax if motorists are to receive the full benefit of the 30% fall in crude oil prices.

Opec - the Organisation of Petroleum Exporting Countries - wants to raise prices by cutting production by 1.5m barrels a day - but only if non-Opec producers make a similar move. The Kuwaiti oil minister said the price of a barrel could fall below $10. 'I wouldn't be surprised. Reaching $10 will be a hard hit for us and even harder for those with a higher cost of production,' said Adel al-Subaih.

Ray Holloway, of the Petrol Retailers' Association, said: 'It is a very volatile situation at the moment. Unleaded has dropped by about 7p a litre since 11 September. If the current crude price continues, then unleaded could drop another 1p a litre by the end of next week. But I'd expect diesel to go down by 2p to 3p.'

Tony Vickers, of the Association of British Drivers, said: 'Pump prices have fallen, but they could drop further. One of the main reasons they aren't being slashed is the disproportionate amount of tax UK motorists have to pay. It means that even if crude oil drops in price, the high tax means British motorists don't get the full benefit. We're still paying over the odds. Gordon Brown's tax take is still huge.'

Opec, which produces about 40% of the world's oil, has already announced cuts in production three times this year in response to the global economic lowdown. It now wants Norway, Mexico and other independent oil-producing countries to cut their output by 500,000 barrels, for a combined cut of 2m barrels a day from 1 January.

However, analysts said other producers are reluctant to co-operate unless Opec members first cut production by 800,000 barrels a day to their agreed quota of 23.2m barrels.

Russia, the third largest producer of crude oil, is also thought to be keeping supplies high to aid an economic recovery in the US and the West. It has increased its output by about 500,000 barrels a day this year and is expected to pump an additional 420,000 barrels a day in 2002. Global demand for crude oil, meanwhile, has increased this year by just 100,000 barrels a day.

Yasser Elguindi of New York consultancy Medley Global Advisors said: 'In many ways, it's a game of chicken. Confronted with a sharp drop in global demand for crude, Opec has cajoled, threatened and warned of a price war if producers outside the group refuse to close ranks with it.'

Saudi Arabia's oil minister Ali al-Naimi said the global downturn meant Opec can no longer manage the volatile crude market on its own. Although some analysts have described Opec's strategy as a price war, Naimi insisted he was only making an appeal to non-Opec producers to help stabilise the market. 'This is not a price war nor a pursuit of market share. We are in a crisis mode and we need help,' he said. 'This is a serious appeal.'