Supermarkets in petrol price war

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Three of the UK's biggest supermarkets are cutting the price of petrol on their forecourts.

Asda, Morrisons and Sainsbury's will sell unleaded petrol at 87.9 pence a litre, as crude oil prices fall.

The news is welcome relief for motorists - many of whom have seen petrol pushed through the £1 barrier in recent months.

Oil hit a record high of $78.60 ($1.87) a barrel in mid-July but is now at a seven-month low of under $64.

Asda is implementing the two pence a litre cut at all its petrol pumps across Britain and Northern Ireland, which means the supermarket's petrol price will reach its lowest level since January.

Move welcomed

Sainsbury's says it has reduced its petrol prices six times over a month, which translates into a drop of 10 pence per litre for unleaded petrol.

"The falling cost price of fuel means we are able to pass reductions in cost onto customers on a national level," said Parveen Johal, a Sainsbury's spokesperson.

Since 2 September, Sainsbury's has sold diesel at 92.9 pence, the same price at Asda.

Morrisons said it was "passing the best value on to the customer".

"Prices have been volatile as we have seen" said spokesperson Colin Middlemiss, but added that the firm did not want to speculate on future prices.

Supermarket giant Tesco did not return calls.

The Royal Automobile Club (RAC) Foundation - the think-tank arm of the driver's group - said the move was "welcome".

Supply fears

The record oil price highs came at the peak of the crisis between Hezbollah and Israel which sparked fears over supply.

Other geopolitical factors also came into play - including concern that Iran might withhold oil if sanctions were made against it over its nuclear ambitions.

Insurgency attacks in Nigeria, as well as the partial closure of BP's largest refinery in the US, both reduced output.

However a drop in demand in the US, and oilfields in the Gulf of Mexico escaping damage during the hurricane season, alleviated supply worries.

Prices fell further after oil-producing cartel Opec announced it would maintain its output at current levels of 28 million barrels per day.

Ofgem warning

The news came after recent forecasts pointed to lower demand for oil in 2007.

The RAC Foundation warned that it was hard to tell whether prices would keep falling because of the continued "instability in oil producing areas".

Customers are expected to also benefit from falling wholesale gas prices with the energy regulator Ofgem warning that it will "go after" gas firms who do not pass on the benefits.

While the wholesale gas price has fallen around 20% from record levels, consumers have seen prices repeatedly rise over the past year.