Fuel Price Pulse – 20th December

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

The market is trading higher compared to the same time last week.

At the start of the week, oil prices saw significant gains, marking their first weekly rise since late November. This upward movement was driven by heightened supply concerns following additional sanctions on Iran and Russia.

Meanwhile, a surplus outlook exerted downward pressure on markets. This concern that global production and supply of oil will outpace the consumption or demand for it, can result in downward pressure on prices, as an oversupplied market typically leads to lower prices unless offset by other factors, such as geopolitical risks or increased consumption forecasts.

Optimism surrounding Chinese stimulus measures, aimed at boosting demand in the world’s second-largest oil consumer, also provided support to prices.
As the week progressed, prices dipped slightly due to signs of weakness in consumer spending in China. Slower-than-expected retail sales have maintained pressure on Beijing to enhance stimulus efforts in an economy which is being impacted by U.S. trade tariffs under the Trump administration. Investors also remained cautious ahead of the U.S. Federal Reserve’s interest rate decision.

Following the Federal Reserve’s policy announcement and press conference following its December 2024 meeting, the Federal Reserve cut interest rates by 0.25%, resulting in prices falling further.

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 also 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

Looking ahead, we expect the market to trade slightly lower into next week.

Prices this morning have declined amidst concerns about demand growth in 2025, particularly from China, the world’s largest crude importer. The dollar’s climb to a two-year high has added pressure on oil prices, after the Federal Reserve flagged it would be cautious about cutting interest rates in 2025. A stronger dollar increases the cost of oil for non-dollar buyers, while a slower pace of rate cuts could temper economic growth and reduce oil demand.