By Libby George
LONDON (Reuters) - Europe's drivers are in for a winter treat as plummeting oil prices and a surplus of distillates are set to pressure diesel pump prices that are already at six year lows.
Oil firms and commodity-reliant nations are smarting from tumbling oil futures, which hit fresh seven year lows near $39 per barrel on Friday following the failure of oil cartel OPEC to impose a production ceiling at its meeting last week. [O/R]
Their pain is to the benefit of Europe's drivers, who have had to wait longer for price declines than their American counterparts due to higher fuel taxes and a strong U.S. dollar.
Already, British supermarket chains Asda and Morrisons have cut the price of petrol to below the 1 pound per litre mark. The Petrol Retailers Association said other retailers were "likely to follow their move" if oil prices remained low, while industry group RAC said the level "should become commonplace."
According to the RAC Foundation, the price declines would cut the cost of filling up a 55-litre car with petrol by around 9 pounds compared with last year, while diesel would be more than 11 pounds cheaper.
Lower fuel prices should put extra money in consumers' pockets for the holiday shopping season, potentially providing a boost to economic recovery across Europe.
Europe's many diesel car owners are on track for even bigger savings due to a burgeoning overhang of distillates in oil tanks across the region.
"There has been a significant increase in global supplies of diesel," said David Hunter, energy analyst with Schneider Electric (PA:SCHN) Energy and Sustainability Services. "You see that reflected in the northwest European prices."
Fuel prices, while related to crude oil, also move according to their own supply and demand dynamics. This year, consumption of gasoline, which dominates car fleets elsewhere in the world, skyrocketed, while diesel demand growth suffered from slower industrial activity.
This, along with the addition of new diesel-oriented refinery units worldwide, has turned Europe into a dumping ground of excess supply.
That has weighed on diesel wholesale prices, which slipped below petrol in the UK this week, according to the Petrol Retailers Association.
The average diesel price at the pump across Europe has also fallen by just under 1.5 percent from late November to this week to an average of 1.16 euro per litre, according to European Commission data, more than double the rate of gasoline's decline.
This has piled on the pain for oil refineries that bet big on diesel demand growth. Saudi Arabia alone has opened two massive new diesel-oriented refineries in the past two years, while refineries in Asia and Europe have also added diesel units.
"Certainly, the wholesale price for distillates is under a lot of pressure," said Steve Sawyer, head of refining at energy consultants FGE.
But the news is excellent for Europe's drivers.
The car fleet on the continent shifted from gasoline to diesel engines over the last two decades as governments favoured diesel's lower carbon dioxide emissions and high efficiency compared with gasoline.
By 2014, diesel cars made up more than half of passenger fleet sales in Europe; its cars and trucks now consume around 3.8 million barrels per day, according to FGE, making it the largest automotive diesel market in the world.
"There is another wave of pressure to come," Sawyer said, once the winter heating season ended and refineries ramped up production to meet gasoline demand.
"Absent any really cold weather ... it's difficult to see how this mountain of distillates is going to be worked off."