UK petrol prices could rise by 50% due to sanctions imposed on Russia by cutting oil supplies, Members have been warned.
This would push the cost of a liter of petrol to £2.40, from around £1.60 today, the Treasury Committee heard this afternoon.
Dr Amrita Senresearch director at Energy Aspectstold MPs that crude prices could hit $160 a barrel, up from around $110 a barrel now, as Russian oil is taken off the market.
Sen explained that this increase would lead to a 50% increase in retail prices – unless the government introduces tax changes to lower prices.
Before the war in Ukraine, Russia exported about 5 million barrels of crude per day, making it the second largest exporter after Saudi Arabia.
Nathan Piperhead of oil and gas research at Investectold MPs that if those 5 million barrels were removed, oil would rise a lot before demand destruction occurs.
Consumers should prepare for continued increases in fuel prices in 2022, Piper (speaking in a personal capacity) warned.
Diesel prices could rise even more than unleaded, possibly up to £3 a litre, the committee heard. Europe imports about 50% of its diesel from Russia, while a third of the diesel imported into the UK comes from Russia.
Sen said she feared diesel rationing could happen as early as the end of this month in Germany, where it is widely used as a heating oil as well as a transportation fuel. There could also be repercussions in the UK.
Rationing would start with industrial users, Sen explained. As diesel prices rise, some energy-intensive users will exit the market. But governments may have to step in to impose some cuts.
Sen also explained that if supply cannot rise to replace Russian supply, then demand will have to balance the market.
In the past 50 years, there have only been two times when oil demand has fallen due to high prices (both in the 1970s), which is why she thinks crude oil should be higher. to $160 a barrel before seeing demand curtailment.
Also, as China can buy power at any cost, we could see UK refineries unable to pay high wholesale prices and have to cut output, she warned.