Fuel Price Pulse – 24th January

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 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

Prices have fallen in comparison to this time last week, influenced by uncertainty around the new Trump administration and a slight easing of Middle East tensions. 

Trump and US policy: 

Oil prices were little changed at the start of the week with lots of attention being paid to Donald Trump’s inauguration. While campaigning, Trump pledged to impose trade tariffs on Canada and Mexico on his first day as president. The week started with an announcement that no tariffs would be imposed immediately – causing the dollar to drop. Oil is traded in U.S. dollars, so fluctuations in the dollar’s value impact oil prices. 

On Wednesday, Trump again said he planned to hit the European Union, Canada, Mexico and China with tariffs. Tariff decisions such as these are likely to impact global growth and oil demand prospects.  As attention shifts to a possible February timeline for new tariffs, it is likely that prices will continue to fluctuate. 

Prices were further impacted by announcements of plans to boost U.S. production, news that Trump wants to cut interest rates, and demands that OPEC move to lower crude prices. Changes to production, US interest rates and OPEC prices can all have an impact on supply and demand. 

At the same time, U.S. oil inventories dropped, reaching their lowest point since March 2022. More demand for oil can temporarily push prices up. But this wasn’t enough to outweigh other factors causing prices to fall this week.

Middle East Tensions:

The Middle East holds approximately 48% of the world’s proven oil reserves. Disruptions in production or export from the region, or political upheaval, can immediately affect global supply and prices​. 

Tensions involving Iran, Israel, or Yemen can threaten critical shipping routes like the Strait of Hormuz, which can impact supply and prices. Oil tankers carry approximately 17 million barrels of oil each day through the Strait, or 20 to 30 percent of the world’s total consumption. Midway through the week, a ceasefire between Isreal and Hamas (which follows 15 months of war) resulted in a rebel group scaling back their attacks on commercial vessels – easing supply concerns. While the situation remains very volatile, lower risks typically mean fewer disruptions and lower costs, which can stabilise supply chains and help bring oil prices down.

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 predict the market will continue trading lower 

Fuel prices next week will continue to be influenced by President Trump’s policies, including aims to boost U.S. production and the ongoing possibility of sanctions hitting demand. Sluggish economic recovery in China could keep demand subdued, while risks from the Russia-Ukraine conflict and the Middle East continue to add uncertainty.