Fuel Price Pulse – 31st January

aWe 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

Trump and US policy: 

President Donald Trump has said he will follow through with his threat to hit imports from Canada and Mexico with 25% border taxes, known as tariffs, on 1 February. He also stated that a decision about whether this would include oil from those countries had not yet been made. 

Canada and Mexico are the largest crude oil suppliers to the U.S., so this decision is likely to impact supply, demand and pricing. Any U.S. sanctions on Iran or Venezuela could also tighten supply, though OPEC (see below) has spare capacity to compensate for potential losses.

The American Petroleum Institute (API) reported a 2.86 million-barrel increase in U.S. crude stockpiles, signalling weaker demand and pushing prices down.

OPEC:

Last week, President Trump urged the Organization of the Petroleum Exporting Countries (OPEC) to lower oil prices. In response, Saudi Arabia and other OPEC+ members discussed their production plans ahead of a key meeting on February 3rd. While some reports suggest OPEC will stick to its plan to increase production in April, others say it’s still uncertain. Either way, Trump’s push to boost U.S. oil production is likely to be high on the agenda. 

OPEC influences oil prices because it controls a large share of the world’s oil supply. Its members meet regularly to decide how much oil to produce, which affects global prices.

The Global Economy:

China’s manufacturing slowed in January, raising concerns that the country – the world’s largest crude oil importer – will use less oil. On top of that, new U.S. sanctions on Russian oil could disrupt Chinese refineries. Some independent refineries in China have already shut down for indefinite maintenance periods.

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 

Fuel prices next week will continue to be influenced by uncertainty around President Trump’s policies. Sluggish economic recovery in China could keep demand subdued, while geopolitical risks continue to add uncertainty.