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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 Market Update – What’s Happening at the Pump?
Despite high expectations that oil prices would rise dramatically this week, they actually saw the steepest drop since March 2023.
Middle East tensions
Despite the U.S. bombing Iranian nuclear facilities and Iran’s retaliatory missile strikes on U.S. bases in Doha, the market reacted with caution rather than panic. Oil prices remained mixed at the start of the week but ultimately trended lower as concerns about escalation subsided.
The Strait of Hormuz
One key concern was Iran’s threat to block the Strait of Hormuz, a critical route for about 20% of global oil shipments. However, the waterway remains open, and President Trump’s outreach to China for diplomatic support may have helped to stablise the situation. China is heavily reliant on oil that moves through the Strait, and has actually increased its imports from Iran to record highs during June. The continued flow of oil through the Strait of Hormuz means that there is no significant disruption affecting global supply, which helps keep oil and fuel prices from rising.
Ceasefire sees risk of oil supply disruption drop
The ceasefire between Iran and Israel, although briefly broken, has held for several days. U.S. mediation helped bring both sides back to the negotiating table, and analysts at Goldman Sachs estimate that the current risk of oil supply disruption in the region has dropped to just 4%.
Oil supply and demand
On the supply side, U.S. oil inventories showed strong draws. Meanwhile, OPEC+ is expected to raise output by 411,000 barrels per day at its upcoming July 6 meeting, further easing supply concerns. If supply rises faster than demand, oil becomes less scarce, and prices — including fuel prices — tend to fall. The current situation suggests that increased supply is offsetting demand pressure, which is why fuel prices are likely to stay low or even drop further.
Looking Ahead – oil prices next week
We expect oil prices to remain lower going into next week, provided current trends continue, with no significant new threats and steady supply.
Unless global demand spikes or supply unexpectedly tightens, prices at the pump are not expected to rise.
General factors that influence oil and fuel pricing:
- 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 and summer cooling demand 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.