More market misery as oil prices plummet

The good news: it's going to be affordable to fill up your car again. Although the causes of that aren't very gratifying.

by Emma Haslett
Last Updated: 06 Nov 2012
If, like MT, you didn’t get much sleep last night, here’s something to perk you up a bit: the price of oil has fallen again, dropping by more than $5 to $98.74, which took the price of a barrel of Brent crude below $100 for the first time in six months. Hallelujah. Less cheering, on the other hand, are the causes of the fall: market turmoil in China and the US, as well as concerns over the fate of Europe. And that’s not all: growth figures for Europe are (not surprisingly) down for the six month in a row. Just don’t mention the riots…

Over the course of August, oil prices have shed 15%, which is good news for beleaguered drivers, who have had to put up with vastly inflated oil prices since the beginning of the Arab Spring, when there were worries the unrest might cause disruption to supply. But after the double blow over the last few days of the downgrade of US debt, followed by China’s admission yesterday that inflation had surged to 6.5% (which analysts have speculated could prevent its central bank from cutting interest rates), the big sell-off began – the idea being that if global growth is down, demand will begin to dwindle.

Asda has already responded, promising to cut prices by 2p a litre at its 188 petrol stations from today. That means customers won’t pay more than 132.7p a litre for unleaded, and 136.7p for diesel. But it’s not just good news for those looking to fill up their cars: ever-higher fuel prices have pushed up the cost of food over the past few months. It’s difficult to say whether this will have an immediate effect on food prices – but given supermarkets’ enthusiasm for under-cutting one another, if prices stay low, it probably won’t be long.

Given that oil prices tend to mirror expected global economic activity, it’s no surprise that they experienced yet another day of turmoil yesterday: in fact, it was the worst day of overall trading in the US since December 2008. The FTSE 100 also plummeted, to below 5,000 (the last time that happened was July last year, when a storm was raging over sovereign debt crises in Ireland and Greece), down more than 100 points in mid-morning trading. DAX in Frankfurt was even worse, dropping more than 200 points, while markets in Paris, Milan and Madrid also fell.

All eyes are (again) on the US: its Federal Open Market Committee (its equivalent of our Monetary Policy Committee) is due to meet later. As Cameron Peacock, market analyst at IG Markets put it, it has the potential to be the ‘next big driver for market sentiment amidst speculation that further stimulus is needed to give the fragile economy a shot in the arm’. In other words, if it says the right things, investors could be reassured. But that’s by no means guaranteed.

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