The cost of petrol in the UK is nearing £1 for the first time in four years. This is the result of an extremely volatile start to 2020 for the petrol market as it encounters both a supply-side shock and demand-side shock at the same time.
From the supply-side, prices have been pushed downwards as Saudi Arabia and Russia, two of the world’s largest manufacturers and exporters of crude oil, have been engaged in a destructive price war since early March when the price for a barrel of crude fell 30% overnight.
The demand-side shock has come from the spread of Covid-19 around the world. The deadly coronavirus has led to school and business closures across the UK, with the government now encouraging all citizens to stay at home except for essential trips to supermarkets and pharmacies. According to a survey by the Department for Business, Energy & Industrial Strategy, the lockdown has resulted in a 75% decrease in petrol consumption across the country, forcing petrol stations to push the price down further in an attempt to attract customers to the pumps.
THINK LIKE AN ECONOMIST!
Q1. With reference to the article, explain what is meant by a demand-side shock.
Q2. Describe the trend for petrol prices in 2020 so far. What has caused it?
Q3. What do think is going to happen to the price of petrol in the next few months?
Q4. Assess the extent to which households and businesses can benefit from the low price of petrol.
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