Fuel Price Pulse – 3rd Janaury

Robin, Customer Success Manager at The Fuel Store, shares his insights into the factors impacting fuel prices, including his 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

The market has been trading higher compared to this time last week, buoyed by a combination of weather-driven demand and geopolitical developments.

Weather and energy dynamics

At the start of the week, prices were bolstered by forecasts of extremely cold weather expected to persist over the next three weeks. This sharp drop in temperatures across Europe coincided with a significant shift in energy dynamics: an end to Russian gas supplies via Ukraine. This development marks the end of a five-decade-long partnership where Russian gas was transported through Ukraine to European customers. The reduced supply options have strained Europe’s energy market, resulting in elevated prices.

Chinese economic stimulus

On the first trading day of 2025, investors returned with renewed confidence following Chinese President Xi Jinping’s New Year’s address. Xi pledged to adopt more proactive measures to stimulate growth in 2025, reinforcing expectations of increased fuel demand from the world’s second-largest economy. 

Oil Market Dynamics

Oil prices experienced dropped slightly after surging earlier in the week. Expectations of tightening supplies and robust demand recovery in key economies like China and India look set to boost prices. 

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 also 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

Looking ahead, we anticipate a mixed trajectory as we head into next week. Prices are likely to trade lower initially as the recent weather-driven surge and speculative activity correct. However, as the week progresses, renewed confidence in global economic growth and ongoing supply-side challenges are expected to drive prices higher once again.