Fuel Price Pulse – 10th Janaury

Robin, Customer Success Manager at The Fuel Store, shares his insights into the factors impacting fuel prices, including his predictions for fuel costs as we head into next week.

What determines fuel prices?

Wholesale fuel prices govern the price you pay for petrol and diesel at the pumps. Wholesale prices are influenced by a range of factors, including supply, demand, and pricing for crude oil, oil refinery production levels, the pound-to-dollar exchange rate, socio-economic and political factors that might impact production/demand, the margin (profit) taken by fuel retailers, and fuel duty and VAT charged by the Government.

Factors influencing fuel pricing this week

Oil prices have risen compared to this time last week, buoyed by continuing weather-driven demand and geopolitical developments.

Geopolitical influences on oil prices

Oil prices started the week lower as traders took profits from recent price increases. However, as the week progressed, prices rose slightly due to tighter supplies from Russia and OPEC (the Organisation of Petroleum Exporting Countries). On Friday, oil prices surged as traders focused on possible disruptions in supply due to more sanctions against Russia and Iran.

US Sanctions

In the US, the outgoing Biden administration plans to impose more sanctions on Russia’s oil exports ahead of Donald Trump’s inauguration on 20 January, at which point Trump is expected to reinforce restrictions on Iran’s oil exports – potentially causing a supply disruption of around 1% of global supply.

Global economic activity

New U.S. data showed an unexpected increase in job openings, pointing to stronger economic activity. As a major oil consumer, improvements in economic activity in the US set expectations for a boost in demand for oil. Over the last month, business activities also accelerated more than expected in major European economies, including Spain, Italy, France, and Germany, which is also expected to boost demand.

Traders are also closely watching China’s stimulus plans, which could drive more demand for oil. Supplies remain tight after the holiday season, adding pressure to prices.

Supply, demand and other factors

• While geopolitical tensions can cause market uncertainty – especially in oil-producing regions such as the Middle East and Russia – global economic performance can slow demand and impact prices. 
• Oil is traded in U.S. dollars, so fluctuations in the dollar’s value impact oil prices. A stronger dollar makes oil more expensive for other currencies, potentially lowering demand. 
• Seasonal factors like winter heating demand in the Northern Hemisphere can also increase oil consumption and pricing. 

Next week’s fuel prices

We expect fuel prices to rise next week, due to forecasts of unusually cold temperatures in Europe and the U.S, which drive up the demand for fuel. In addition, last-minute sanctions against Russia from the Biden administration could reduce supplies further, pushing prices higher. With these factors in play, prices are likely to stay volatile.