Drivers can expect relief at the pump in the coming year as economists forecast that Donald Trump’s initiatives to boost US oil production will drive down prices.
Analysts have stated that oil prices are projected to decrease to around $60 per barrel by 2025, potentially reducing the cost of a litre of petrol by up to 10p.
This would lower petrol prices to £1.26 per litre—the cheapest since early 2021—when pandemic lockdowns curbed demand for transport fuel and before Russia invaded Ukraine.
Petrol prices are poised to decrease in the new year as economists anticipate that increased US oil production under Donald Trump will drive down costs.
Although prices have significantly dropped from a peak of £1.90 per litre in 2022, petrol has still reached highs of £1.50 per litre this year, according to official data. The combination of enhanced US oil output—championed by Trump’s pre-election slogan “drill, baby, drill”—and weakened demand from sluggish Chinese and European economies is expected to further lower prices.
Analysts at JP Morgan project that Brent crude will decline from around $74 per barrel currently to below $70 by the end of the year. Bank of America forecasts average annual prices to settle at approximately $65 per barrel, while Citi analysts predict prices could drop as low as $60.
Simon Williams, a representative from the RAC, commented: “If oil trades consistently around $60 a barrel next year and the sterling-to-dollar exchange rate remains stable, drivers could see petrol and diesel prices decrease by at least 10p per litre. This would reduce unleaded petrol to about 126p and diesel to 132p per litre—the lowest prices since early 2021. Filling up an average family car could save around £5.50.”
During his election campaign, Mr. Trump extensively promoted boosting domestic oil production. Reports indicate that he plans to approve new export permits for liquefied natural gas (LNG) projects and expand oil drilling off the US coast shortly after taking office.
The United States stands as the world’s leading producer of crude oil and the top exporter of liquefied natural gas (LNG).
Citi analysts noted that President-elect Donald Trump’s potential pursuit of “US energy dominance policies aimed at increasing US oil, gas, and power production” is likely to drive down commodity prices.
An increase in production coupled with lower prices is expected to bolster the world’s largest economy and curb inflation. This, in turn, could prompt the Federal Reserve to reduce interest rates, aligning with the president-elect’s objectives.
Citi also highlighted several geopolitical factors that could contribute to declining oil prices. These include a possible resolution to the war in Ukraine, the likelihood that OPEC will increase oil supply to maintain its global market share, and a thaw in US-Iran relations that would enable greater oil exports.
Depending on how quickly oil and petrol prices decrease, there could be a notable impact on overall inflation within the British economy. This is partly because fuel costs constitute a significant portion of the prices tracked by the Office for National Statistics, and also because lower fuel prices have a cascading effect on other goods and services.
For example, reduced fuel costs can lower expenses for hauliers, which in turn decreases the cost of transporting goods across various sectors of the economy.
The last time oil prices remained below $70 per barrel for an extended period was in early 2021, during the pandemic and before Russia’s invasion of Ukraine, when energy prices were relatively low.
Paul Dales from Capital Economics estimates that a $10 drop in oil prices typically results in a 0.1 percentage point decrease in UK inflation. However, since inflation is measured as a year-on-year change, the rate at which oil prices fall also influences their effect on consumer price inflation.
Mr. Dales anticipates that oil prices will decline to $70 per barrel by the end of 2025 and further drop to $60 per barrel a year later.
