Fuel prices fall: good news for motorists

The collapse in oil prices has led to a significant drop in fuel prices, providing a breath of fresh air to motorists. In this context of fluctuating prices at the pump, it is interesting to look at the causes of this drop and the future prospects for the fuel market.

Factors influencing fuel prices

Several elements contribute to the evolution of fuel prices, in particular:

• The price of crude oil : given that fuels come from the processing of oil, variations in the price of a barrel of crude oil can have a direct impact on fuel prices. However, the impact of these variations on pump prices also depends on refining capacities and available stocks globally.
• Taxes and levies : in addition to the price of oil, taxes represent a significant part of the final price of fuel. In France, for example, taxes on petroleum products (TIPP) and the carbon tax can represent up to 60% of the price at the pump.
• The cost of transport and distribution : the cost of transporting oil to consumption areas as well as fuel storage and distribution costs can also influence prices.
• Global demand : Global fuel supply and demand can also play a role in pricing. In times of high demand, prices tend to rise, while in times of low demand, they generally tend to fall.

The collapse of oil prices

Since the start of 2020, the oil market has experienced several upheavals which have led to a spectacular fall in prices. Among these triggers, we can cite:

• The impact of the COVID-19 pandemic : with the implementation of containment measures and travel restrictions in many countries, global demand for oil fell sharply, causing a significant drop in crude prices.
• The price war between Saudi Arabia and Russia : in March 2020, the lack of agreement between the Organization of the Petroleum Exporting Countries (OPEC) and its partners, including Russia, on reducing oil production led Saudi Arabia to increase its production and to significantly reduce its prices, leading to increased competition and a fall in world prices.
• Saturated storage capacities : the drop in demand, combined with the increase in production, has led to a saturation of global storage capacities, further accentuating the fall in prices.

The impact on fuel prices

Faced with these upheavals, fuel prices have seen a notable decrease in several countries. In France, for example, the price of a liter of unleaded gasoline 95 (E10) and diesel fell by more than 10% and 15% respectively between the start of 2020 and the end of June 2021.

This drop in prices is good news for consumers, who can thus benefit from slightly increased purchasing power. However, it should be emphasized that this situation could be temporary and will depend closely on the evolution of oil prices, but also on political decisions in terms of taxation and energy transition.

Outlook for the fuel market and motorists

Several elements could influence fuel prices in the short and medium term:

• Economic recovery after the health crisis : with the improvement of the pandemic situation and the gradual lifting of restrictions, global demand for oil could start to rise again, pushing prices to rise again.
• The evolution of environmental policies : faced with climate challenges, many countries are committing to energy transition policies aimed at reducing their dependence on fossil fuels. These guidelines could weigh on the prices of traditional fuels and encourage the development of alternatives such as biofuels or electric vehicles.
• Geopolitical tensions : Relations between major oil producers could also have an impact on crude prices and, therefore, fuel prices. Persistent tensions in the Middle East or disagreements between OPEC and its partners may in particular generate uncertainty on the market.

Motorists’ choices

Faced with this situation, it is up to motorists to take these elements into account in their vehicle and fuel purchasing decisions. For those who wish to benefit from more stable prices and less dependent on fluctuations in the oil market, options such as hybrid, electric or natural gas vehicles can be interesting alternatives.