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What determines fuel prices?
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 impacting fuel prices this week
Oil prices went up by about 2% on Tuesday, reaching their highest level in three weeks. This increase was driven by China’s announcement of a major financial boost to its economy and worries that the growing conflict in the Middle East might disrupt oil supplies from the region.
Despite this initial rise, prices dropped slightly after it became clear that a hurricane expected to hit the major US oil-producing region was instead heading for Florida. Some offshore producers had evacuated platforms or closed rigs early in the week, as a precautionary measure. Some firms, including Shell, restored production as the storm forecasts shifted away from their offshore platforms.
News reports also showed a sharp drop in U.S. consumer confidence, the biggest in three years. U.S. consumer confidence is a strong indicator of future economic activity and demand for goods and services. A significant drop in consumer confidence can directly and indirectly reduce fuel demand, applying downward pressure on oil prices.
Crude oil inventories in the United States fell by 4.339 million barrels for the week ending September 20, with further drops expected – the fifth decline in six weeks. This decline in stored oil supplies has also influenced market dynamics.
Rising tensions in the Middle East, including an Israeli airstrike in Beirut, have shifted market sentiment away from the recent pessimism about oil prices. Concerns are also growing that the conflict could pull Iran, a key oil producer and OPEC member, into a conflict with Israel.
Meanwhile, a pending resolution to Libya’s central bank crisis looks set to restore significant oil supply. Delegates from Libya’s east and west have agreed on the steps and timeline for appointing leaders of the central bank, according to the United Nations. This deal could ease tensions over who controls the central bank and oil revenues, which have been causing a sharp drop in Libya’s oil production and exports in recent weeks.
Oil prices fell by 3% on Thursday after a Financial Times report revealed that Saudi Arabia plans to abandon its unofficial goal of reaching $100 per barrel for crude. The report indicated that Saudi Arabia, along with OPEC and its allies, is preparing to increase oil output in December. Experts note that the planned production increase, adding about 180,000 barrels per day, could loosen the global oil supply balance, with speculation that Saudi Arabia might be entering a price war with other oil producers. This has caused uncertainty in the oil markets, which were already concerned about future oil supply and demand balances in 2025. Investor sentiment is low, reflecting worries about the potential instability in global oil markets.
Meanwhile, OPEC has raised its medium and long-term oil demand forecasts, citing growth in countries like India, Africa, and the Middle East and a slower shift to electric vehicles and cleaner fuels.
Next week’s fuel prices
We predict the market will be more stable going into next week. Businesses and drivers can reduce costs further by opting for a fuel card. In 2023, customers of The Fuel Store saved an average of 12 ppl off forecourt costs.
Ready to find out how a fuel card can save you money? Speak to our team or explore our range of fuel cards here.
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 purposes.