We share our insights into the factors impacting fuel prices, including predictions for fuel costs as we head into next week.
What determines fuel prices?
Wholesale fuel prices determine the price of petrol and diesel at the pump. They are influenced by a range of factors, including crude oil supply, demand, and pricing, 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.
Fuel prices this week:
Fuel prices have dropped slightly this week, and there is speculation that the price at the pump is set to fall further after hitting a sixth-month high in January and February. Several key factors have influenced this change, from global politics to economic trends.
Oil prices and market confidence
Oil orices rose at the start of the week, but later fell due to concerns about tariffs and a possible recession. When investors fear economic instability, they often sell off oil-related assets, which lowers crude oil prices. Since crude oil is the main ingredient in gasoline and diesel, this price drop helps bring down fuel costs at the pump.
Geopolitical tensions affecting supply
Oil prices remain unstable due to ongoing global conflicts. This week, Ukraine targeted Russian refineries and pipelines. This has caused concern that Russia may struggle to export oil. Meanwhile, tensions are ongoing in the Middle East. The Houthi rebels have threatened attacks in the Red Sea in response to the Israel-Gaza situation. The Red Sea is a major shipping route for oil, so any disruptions here could slow deliveries. Both of these factors may cause supply to tighten, which could cause prices to rise.
U.S. trade policies = Economic uncertainty
The U.S. government’s trade policies, including potential new tariffs, are adding uncertainty to global markets. Uncertainty can cause businesses to slow production or reduce investments, leading to oil price fluctuations. If tariffs make it more expensive to transport goods, fuel demand could drop, helping keep prices lower.
OPEC+
OPEC+, a group of major oil-producing countries, carefully manages oil supply to stabilise prices. However, reports suggest that OPEC+ production is increasing. If more oil enters the market, this could lower prices because a larger supply often means cheaper fuel for consumers.
Seasonal Demand and European Diesel Supply
Fuel demand typically rises in the spring due to increased travel. However, European diesel supply is tightening because of reduced imports and upcoming refinery maintenance. If diesel becomes scarcer, prices at the pump could increase, especially for truckers and industries relying on diesel-powered vehicles.
U.S. Inflation and Interest Rates
Inflation in the U.S. fell in February, which could lead to larger interest rate cuts by the Federal Reserve. If interest rates drop, borrowing money becomes cheaper, which can boost economic activity and increase fuel demand. At the same time, a weaker U.S. dollar makes oil cheaper for other countries, which could increase global demand and raise 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 dollar fluctuations impact oil prices. A stronger dollar and fluctuations in exchange rates make oil more expensive in other countries, 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
Despite all these factors, the market is expected to trade relatively stably next week unless a major event disrupts supply or demand. Monitoring oil production, trade policies, and global conflicts will be key to understanding where fuel prices will go from here.
Please speak to our team for more information on fuel card pricing, including advice on how to save time and money on fuel management.
The information provided in this post is for information only. It does not constitute financial advice. Pricing predictions are speculative and should not be relied upon for forecasting.