Plummeting petrol prices – what do they mean for you?

considers the short and long term impact on falling oil prices for student drivers

If there’s one thing that’s an excessive drain on students’ wallets, it’s the cost of keeping and maintaining a car. According to the RAC Foundation, in December  2014 £2.57bn was spent on fuel. The peak for that year was £3bn, spent in July. During
this month oil was valued at over $100 per barrel, whereas now, just over six months it’s less than half that at $48. The consequence?

Cheaper fuel. It is unlikely, though, that fuel will half in price due to uncertainty about the price of oil. Nevertheless, prices have dropped significantly.

Petrol, from a high of £1.37 in March of 2014, can now be bought for less than one pound, and diesel has also seen significant decreases. This will bring benefits for all motorists and the economy as a whole. A fall in the price of a necessity like fuel will mean more money in people’s pockets to spend on other things. The saving is significant: in July 2014 filling up a Vauxhall Astra 1.6 with petrol would have cost roughly £73 whilst now it would be only £56, a saving of £17 or 23.3%, with prices moving from £1.30/litre to £1. Beneficial, yes?

Potentially not. Lower fuel prices will encourage more consumption – people will be inclined to drive more miles. Though this might be good for the drivers, it would negatively affect everyone else. Environmental damage may increase to a significant extent. More driving results in more congestion and longer waits with more people on the road. More cars on the road increases the potential for accidents to occur, causing damage to the car, other property, and, most importantly, people. Thus, a permanent drop in the price of oil, in all likelihood, will only bring about savings to the consumer in the short-term.

Once price expectations are in line again, it is likely that insurance premiums will rise to accommodate this new potential for accident. It may not be plausible to believe in an exact counterbalance, but the rise in premiums will go some way to offset the fall in the price of fuel. These changes will benefit some drivers more than others. Insurance is largely a fixed cost, driving a car more has little bearing on how much insurance a driver has to pay, whereas fuel is a variable cost, more driving means higher spending on petrol. Those who drive more will see more of a benefit from the fall in petrol prices. Students, who may only drive when at home, will feel the increase in insurance premiums far more, both because they are seen as more risky and drive less than other drivers.

Ultimately, the change in oil prices may at face value seem beneficial and by all means you should voraciously fill up your gas tank while you still have time. However, as time progresses, it’s likely that increased costs of maintaining a car will make it more difficult to continue driving them. So that’s excellent in the short term but one will have to think twice whether the price cuts are sufficient to outweigh the increase in other costs.

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