Fuel Price Pulse – 18th October

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.

The price you pay for petrol and diesel at the pumps is governed by wholesale fuel prices. 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

At the start of the week, oil prices rose due to ongoing concerns over the conflict in the Middle East, and the potential impact of disruptions in oil production. These geopolitical tensions initially supported higher prices as traders anticipated potential supply shocks. However, as the week progressed, several other factors combined to bring down.

The influence of OPEC’s oil market demand outlook

On Monday, OPEC revised its global oil demand growth outlook for 2024 and 2025, projecting lower demand than previously expected. China accounted for the bulk of the 2024 downgrade as OPEC reduced its growth forecast for the country, after data for the first nine months of the year showed a 3% fall in imports. Declining Chinese oil demand is attributed to the growing adoption of electric vehicles (EV), as well as slowing economic growth.

The impact of China’s economic slowdown

The Chinese economy has been facing persistent challenges and – as a major driver of global oil demand – the challenges are impacting global oil forecasts. China’s oil imports fell for the fifth consecutive month this month, signaling a slowdown in industrial activity and domestic consumption.
Additionally, China’s government stimulus measures (which were highly anticipated when first announced) have failed to inspire confidence among investors, leading to concerns over sustained low demand growth. This has further dampened oil prices, overshadowing market fears about potential supply disruptions from the Middle East.

Ongoing tensions in the Middle East

Concerns over the possibility of Israeli retaliation against Iran’s October 1 missile attack briefly saw oil prices rise. However, these fears did not materialise into immediate supply disruptions. With tensions ongoing, traders were watching the situation very closely – with particular focus on potential Israeli attacks on Iranian oil infrastructure, and military reinforcements from the US (an effort to stabilise the region, calming some of the immediate fears of a broader conflict). Biden has publicly opposed an Israeli strike on Iran’s nuclear and energy infrastructure, which, if carried out, could have major implications for global oil supply and push prices higher.

By the end of the week, geopolitical fears had eased somewhat, reducing upward pressure on prices.

Other market pressures

Another factor contributing to the market’s downward trend is the global shift toward cleaner energy sources. As countries, including China, implement policies to reduce reliance on fossil fuels and promote renewable energy, the demand for oil continues to face long-term pressure.
The U.S. dollar hit a nine-week high on Monday. A stronger dollar makes oil, which is priced in U.S. dollars, more expensive for international buyers using other currencies. This tends to lower global oil demand, further pushing prices down.

At the same time, U.S. crude oil stockpiles were expected to have risen last week, according to a preliminary Reuters poll, while distillate and gasoline inventories likely fell. These shifts in stockpile data provide insights into supply and demand – particularly as winter approaches and demand for oil typically increases – and are being closely monitored by traders.

Next week’s fuel prices

In summary, this week’s initial price spike due to geopolitical tensions has now eased, following the release of updated economic forecasts from the International Energy Agency (IEA) and OPEC, pushing prices back down.

Looking ahead, it is expected that the market will stabilise going into next week. Continued monitoring of the Middle East and Chinese demand will remain crucial.