Fuel Price Pulse – 21st March

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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 remained relatively stable, with just a slight reduction compared to last week’s price per litre. With speculation from the RAC suggesting that the wholesale cost of oil will reduce the pump price, we explore the factors influencing prices this week.

 

Geopolitical and economic uncertainty

US policies – including reciprocal tarrifs between trading partners Canada, Mexico and China – have increased uncertainty for businesses, consumers and investors, prompting concerns of a recession. Geopolitical tensions also drive volatility, with Ukraine’s attacks on Russian refineries raising supply concerns. In the Middle East, Houthis threatened Red Sea attacks over Gaza aid.

U.S. inflation fell in February, increasing expectations of Fed rate cuts. These cuts could weaken the dollar and make oil cheaper for international buyers, potentially supporting demand. Markets remain volatile as traders await key tariff decisions and geopolitical developments.

 

Supply and demand

European diesel supply is tightening, but demand remains strong. Despite low inventories in the U.S. and Europe, reduced Russian exports, and strong demand, refining margins have dropped below seasonal averages. This disconnect is likely due to rising trade tensions, particularly U.S. tariffs, and geopolitical uncertainty, including a potential Ukraine ceasefire.

 

Tightening of oil supplies

Prices rose slightly today (Friday) after the U.S. Treasury announced new sanctions on Iran, including those on China-based Shandong Shouguang Luqing Petrochemical Co., Ltd, which purchases Iranian oil. Because of tighter sanctions, analysts expect a 1 million barrels per day (bpd) reduction in Iranian crude oil exports.

In early March, OPEC+ confirmed that eight members would increase output by 138,000 bpd from April. However, this week, OPEC+ issued a new schedule requiring seven member nations to cut production to compensate for past overproduction. These compensatory cuts will outweigh the planned output increases, tightening supplies and potentially pushing prices up.

Meanwhile, escalating Middle East tensions, including U.S. strikes on Houthi positions in Yemen and Israeli operations in Gaza, have raised concerns about potential supply disruptions. In addition to impacting supply, ongoing Red Sea disruptions have driven up shipping costs and increased transit times for fuel shipments from Asia and the Middle East to Europe. This could result in price increases.

 

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. 

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.