Crude Oil Prices in UK: Determinants, Government Actions, and COVID-19

This report provides a comprehensive analysis of crude oil prices in the United Kingdom. It begins with an abstract summarizing the key points, followed by an introduction that defines crude oil and its importance as a global commodity. The report then delves into Task 1, which explores the determinants of crude oil prices in the UK, including demand and supply, economic growth, and inflation. Task 2 examines the effects of government actions, such as the ban on petrol, diesel, and hybrid cars, on crude oil prices, along with an assessment of the immediate and future impacts of COVID-19 on the market. The report concludes with a summary of the key findings and references supporting the analysis. The report highlights the dynamic nature of crude oil prices, emphasizing the interplay of economic factors, government policies, and global events like the COVID-19 pandemic.

Crude oil Prices in UK

Table of Contents
ABSTRACT.....................................................................................................................................3
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................7
Determinants of prices of crude oil in UK.............................................................................7
TASK 2..........................................................................................................................................10
Effects of government Actions on priced of crude oil in UK...............................................10
Immediate impact of Covid19 on Crude prices in UK.........................................................11
Future impact of Covid19 on prices of crude oil in UK.......................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

ABSTRACT
This documents presents the ways in which crude oil prices are dynamically changing in
UK. There are a number of economical factors which lead to change in price of crude oil. Major
focus is paid on fluctuation of prices in united Kingdom. Income, demand and supply, economic
growth, inflation etc. are various factors that are resulting in movement of crude oil prices. A
number of government actions are resulting in reduction in use of crude oil as it may soon
become a scarce resource. The effect of COVID-19 can also be seen on crude oil prices as less
use of transportation results in low consumption of crude oil in country.

INTRODUCTION
Crude oil can be defined as a naturally occurring and unrefined petroleum product which is
composed by the help of hydrocarbon deposits and the organic materials in environment. A type
of fossil fuel is used in order to produce refined crude oil and it is used to produce a number of
materials such as gasoline, petrochemicals as well as diesel. It can be termed as a non-renewable
resource which explains that it is naturally placed and it is often seen that from the rate it is been
consumed in the world the resource is very limited (Nonejad, 2020). Crude oil is a natural
resource of raw material which is extracted from the earth. It is also one of the global
commodities that is traded in the markets throughout the world. It is used as both the derivative
contract as well as portal. There are a number of economists who agree that crude oil was and
will always be the most important commodity in the world as it is the only primary source of
energy throughout the world.
There were a number of other fossil fuels like coal which have been harvested throughout
time however crude oil was the first which was developed during industrial revolution. A
number of industries used it in 19th century. There were different newly invented machines
which were dependent upon various resources in order to run (Alaali, 2020). The whole world
economy today depend upon fossil fuel and the demand for this resource in the market is very
politically unrest and also there are a number of countries who control the reserve wires of crude
oil. However, the supply as well as demand of crude oil is affecting the prices and profitability of
countries. There are some countries like United States, Saudi Arabia and Russia who are one of
the leading producers of crude oil throughout the world.
The following statistics depicts how Brent crude oil price from 1976 to 2020 have changed
and is now standing at US$39.82 per barrel. Brent is considered to be one of the world’s leading
benchmark for the crude oils including Atlantic basin crude oil. The crude oil has been observed
closely in order to influence the cost at all the stages of production and also have been altered
from time to time for the need of consumer goods as well (Aedy and et. al., 2020). In 2019 the
crude oil prices were significantly down from that of in 2014 which was US$99. However there
have been considerable increase from the average price of US$24.45 in 2001 till 2014. The crude
oil is considered to be sweet light crude oil due to the low quantity of Sulphur which is present in
it. In the North Sea there are a number of different oil blends including the Brent Blend and
Ecofisk crude oil. The maximum price of crude oil per barrel was in 2012 which stood at

US$111.63. The lowest price was seen in the beginning and 1998 which stood to be around
$12 .8. There have been fluctuations in the prices of crude oil throughout the time of its
existence.

[Online: Average annual Brent crude oil price from 1976 to 2020, 2020]
TASK 1
Determinants of prices of crude oil in UK
There are a number of different factors as well as determinants of crude oil throughout the
world. All these factors are responsible for the changes and fluctuation in the prices of crude oil.
Below mentioned are three of the factors which are affecting the prices of crude oil in United
Kingdom:
Demand and supply:

Demand and supply stand to be one of the major factors which are the determinants of
prices of crude oil in United Kingdom (Wang and et. al., 2020). The OPEC are a cartel which is
made up of total 14 countries who export this product. All these countries come together to
regulate the prices of crude oil by controlling the supply. They are affecting the supply of crude
oil throughout the world. It is often seen that the supply is determinant of price as the supplies
rising in the market the prices of crude oil will also decrease. If the supply is less than the prices
can be charged higher by the suppliers. Whenever the supply of a product in the market is more
the prices will automatically go down as due to price wars the suppliers are charging low so that
the customers can buy their products. Similarly, the demand of crude oil in the United Kingdom
is also affecting prices of crude oil. As the demand is rising the prices for other countries are
ready to pay for attaining crude oil will also rise. USA, Europe and China are the major driver
companies who are affecting the prices of crude oil with their demand and due to this the prices
for United Kingdom is also being affected (Sterlacchini, 2020). In 2008 due to the financial crisis
a slowdown in the industry were seen as the requirement and demand for the crude oil
diminished due to which the prices of crude oil were also brought down. In this we demand and
supply of crude oil in United Kingdom is affecting the prices of crude oil in the country.
Economic Growth:
The country is highly depending upon oil products due to this the economic growth of
country as well as the changes in price of crude oil are paid attention to words by the economist.
The price shocks in crude oil prices have been examined by a number of theories of
macroeconomics in the economic growth of country. All have been an indicator for economic
stability in a number of countries including United Kingdom (Kang, Sklibosios Nikitopoulos and
Prokopczuk, 2020) . The prices of oil are of critical importance to the economy as it is the largest
internationally traded group throughout the world which is both in the terms of value as well as
volume. Also, there are a number of energy incentive services and goods in United Kingdom
which are directly linked to the energy prices. This energy is also linked to the prices of crude oil
as they provide a number of fuels such as natural gas, coal and electricity in various sectors
particularly in transportation sector in United Kingdom. To abrupt changes in the prices of oil
there have been seen a number of modifications in production as well as consumption both in
country. It is seen if the economic growth of the company is higher than the prices of the oil will
also change. Relationship between economic growth and the prices of crude oil is positive as the

economic growth in a country is increasing the prices of crude oil is also on the verge of
increasing day medically. This can be seen as in 2007 the economic growth was also driving the
prices of crude oil to grow (Langshaw and et. al., 2020). There have been seen economic growth
in the number of oil exporting countries who have risen the price of crude oil which is less than
that the loss of economic growth in importing countries. However, UK stands to be importer of
crude oil. The propensity of consumption is also responsible for the economic growth as well as
changes in the crude oil prices in United Kingdom.
Inflation:
The prices of crude oil as well as inflation are connected in a cause and effect relationship.
As the all prices move up inflation which is a measure of how various prices in an economy
follows the similar direction and becomes higher. And as the prices of the oil is falling the
inflationary pressure is starting to ease that is the inflation is reducing. The causes of oil and
inflation or link as one of the major input in the economy is oil which is critically used in various
sectors such as transportation and heating homes in United Kingdom (Li, Tang and Wang, 2020).
as there is seen an increase in the prices of crude oil the impact will be on plastic as well as
plastic companies and they will raise their prices which will lead to inflation in the economy.
From 1970 itself there can be seen a positive relationship between inflation and the crude oil as
in 1973 it was three dollars per barrel which increased to $40 due to the consumer price index
which is the measure of inflation in an economy. However, this relationship has been seen
deteriorating as due to the Gulf War oil prices the prices of crude oil were doubled however the
inflation was seen to remain the same. From 1999 to 2005 the relationship between crude oil
prices and inflation have been more apparent as the similar increase and decrease in both the
inflation level as well as the prices of crude oil were seen (Uysal and Adalı, 2020). The estimates
have shown that oil prices as well as inflation have declined from 19 eighties to the mid-1990s in
United Kingdom. After 2003 the importance of the prices of oil and the inflation in United
Kingdom both have risen significantly. This have effectively show on the positive relationship
between both of this and that inflation is also one of the determinants of oil prices in United
Kingdom.

TASK 2
Effects of government Actions on priced of crude oil in UK
UK government to ban petrol, diesel and hybrid cars in 2040
There has been a ban on selling on new petrol, diesel as well as hybrid cars in United
Kingdom which will be brought into action from 2040 or latest by 2035 which is mentioned in
government plans. This is a great advantage which have been brought in by country which will
lead to United Kingdom a meeting virtually zero carbon till 2015 to environment. With this
action of the country the use of crude oil will reduce significantly (Smith. and de Carvalho,
2020). As petrol and diesel are derived from crude oil itself the use of this will deteriorate. This
will lead to less demand for crude oil in United Kingdom. Due to less demand and the regular
supply which have been throughout the time the prices of crude oil will surely fall down for the
country. The proposal was first meant for only petrol and diesel vehicles but now the hybrid
vehicles have also been included in this proposal in which it will be banned after 2035. However
the effects on crude oil will be permanently set up after 2050 when the old conventional cars on
the road were completely be cleaned up as starting from 2035 it will take some time for these
vehicles to vanish from the roads of United Kingdom totally. The carbon emissions have
deteriorated the environment and also the crude oil prices charged from United Kingdom will be
reduced which will lead to growth in economy of the country as expensive crude oil will no more
be bought by United Kingdom (Langshaw and et, al., 2020).
Reduction of petroleum revenue tax 20% in 2016
Petroleum revenue tax is a special tax which was levied upon gas and oil products in United
Kingdom which was also in addition to the ting fence Corporation Tax as well as supplementary
charge. The petroleum revenue tax also known as PRT was reduced by the finance act 20%
which was started from first of January 2016 (Marwah, 2020). The company’s ability to carry on
refunds by decommissioning losses was also preserved. It was supposed to be a liability in the
future but however the petroleum revenue tax planning opportunities were utilised and the tariffs
of PRT losses. The effects on the prices of crude oil in United Kingdom were seen as the prices
started decreasing. The price of crude oil in 2015 in United Kingdom was US$52.32 per barrel
which was deteriorated to US$43.67 per barrel in 2016. This was a fall of nine dollars which was
approximately 6% of the price in 2015. Due to the 0% tax the companies and industries using
petroleum gases and crude oil for various sources of energy developed a number of other

branches and also the industrialisation in the country was increased (Covarrubias and Perez,
2020). This also had a great effect on the increase of post-tax profits which were affected by a
number of companies also the investment in crude oil projects in United Kingdom have now
become more attractive for the foreign companies. The foreign exchange as well as the foreign
direct investment in the country have also increased after the introduction of these laws.
Immediate impact of Covid19 on Crude prices in UK
There has been recent announcement made by countries like Saudi Arabia who will now
raise the production and offer the crude oil in discounts. This is just due to the impact of
Coronavirus throughout the world (Yilmazkuday, 2020). There has been a combination of oil
prices as the prices have fallen down by 50% since the beginning of the year which is an
uncertain moment for the future price. There are a number of different oil and gas clients who are
moving to quantify and operate various financial impacts on the organisation and see how the
asset portfolio is affected due to this change in the crude oil due to COVID-19. In UK the prices
of crude oil were $64.36 per barrel. This price has fallen down to US$39.82 per barrel in 2020.
This is the effect of coronavirus which have been spread throughout the world. Due to countries
like Saudi Arabia who are claiming to increase the production of crude oil as well as also offer
various discounts on the prices of crude oil throughout the world this impact has been seen not
only in United Kingdom but throughout the world effectively (Sharif, Aloui and Yarovaya,
2020). It is required by United Kingdom to make sure that in this fast-moving environment they
are ensuring the changes to the situation and also the impacts which this situation may have.
They have to be prepared for the quick changes. The cross functional governance structure is
required to be designed by them swiftly in order to communicate and implement the changes due
to the change in prices of crude oil throughout the world (Güngör, Ertugrul and Soytas, 2020) .
Future impact of Covid19 on prices of crude oil in UK
In the process of this pandemic COVID-19 the global economy is engulfing. It is a tiny virus
which have a destroy will effect on global economy. EIA have forecasted that the Brent crude oil
prices will be at the average of $43 per barrel. This is the effect on UK as well where the prices
of crude oil will keep on diminishing. The COVID-19 is spread across more than 175 countries
throughout the world and will also be travelling for a longer period of time now. Entire European
Union have hosted a number of different destinations under them which have severely seen
attack of COVID-19 (Cardona-Arenas and Serna-Gómez, 2020). It is serious condition which

may last for a longer period of time and will have a global impact on the travel due to which the
consumption of crude oil at global level will also decrease. Due to the avoidance of travelling in
United Kingdom due to Coronavirus the use of crude oil is also diminishing sharply. However,
the countries like Saudi Arabia are increasing the supply of crude oil this will result in excess
supply and limited demand in the market for crude oil. This is why the prices of crude oil will
continue to diminish in future however they have diminished up to 45% till date. This will
effectively help the economy of United Kingdom to purchase crude oil at lower prices and will
also help in fighting the price war in crude oil due to COVID-19 situation (Ruiz Estrada, 2020).
CONCLUSION
With the help of the above report it can be concluded that the crude oil prices in United
Kingdom have been fluctuating from the time it has been introduced. The country has seen a
minimum price of US$12.8 per barrel to a maximum price of 111.60 US$ per barrel which was
in 2012 (Swann-Quinn, J., 2020). There are also a number of determinants explained which
affect the prices of crude oil in the country which include demand and supply, income level,
unemployment level, taxes, inflation, economic growth as well as interest rates. In United
Kingdom the government have also taken a number of actions which have had great impact on
the prices of crude oil. In the following report two of such major impacts which are the ban of
petrol diesel and hybrid scar in 2040 as well as the reduction of petroleum revenue tax 20% have
been explained along with their effects on petroleum or crude oil (Gotham, 2020). Is necessary
for the government to make sure that they are taking essential steps to control the prices of crude
oil as the resource is limited and the use of resource is done in every field and industry these
days. UK government is effectively controlling the prices of crude oil in the country with a
number of different taxes as well as implementation of laws.