Oil Price Shock Spreads Beyond Petrol Pumps

As oil and natural gas prices remain elevated, households in the UK are bracing for another cost-of-living squeeze. According to Eric Golson, Professor of Economics at the University of Surrey, the effects will not be limited to higher petrol prices.

The damage is happening downstream, with European refining capacity running tight due to closures, low stocks, and reduced access to Russian output. This has led to diesel prices rising more sharply than petrol, affecting freight and airlines, which rely heavily on fuel for their operations.

Fuel represents a substantial share of airlines' costs, and they can only hedge against price rises temporarily. Hauliers and supermarkets may initially absorb higher costs but will eventually renegotiate and pass them on to consumers.

As a result, households will notice the effects first at the pump, followed by higher prices on supermarket shelves and in travel costs months later. Low European natural gas stocks could also contribute to higher electricity and heating costs this winter.