Fuel Price Pulse – 6th December

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 oil market is trading slightly lower this week, compared to last week. At the start of the week, oil prices remained steady. This was due to a mix of factors: optimism about stronger demand from China’s improved factory activity was balanced by concerns that the U.S. Federal Reserve might hold off on cutting interest rates in its upcoming December meeting.

The Chinese Economy

China’s factory activity grew at the fastest rate in five months this November, driven by a strong increase in new orders, including international demand. This growth boosted production levels and raised manufacturers’ confidence to an eight-month high, according to a private-sector survey released on Monday.
Increased factory activity in China signals stronger economic growth and higher industrial output. As one of the world’s largest oil consumers, China plays a critical role in shaping global oil demand. Weak economic growth in China can limit industrial activity, transportation, and manufacturing—all key drivers of oil consumption – while a strong recovery in China could boost global oil demand. Additionally, the optimism among manufacturers suggests sustained or growing demand, which can further support fuel prices as traders anticipate a steady or rising need for energy in the future.

Federal Reserve eyes interest rate cuts

However, this optimism is tempered by news that the Atlanta Federal Reserve President, Raphael Bostic, has an open mind about cutting interest rates again at its December meeting, with data on jobs important in shaping the decision. Higher interest rates increase the cost of borrowing, which can slow economic activity and dampen demand for oil.

Ongoing geopolitical tension

Geopolitical uncertainties also continue to influence oil prices. Although a ceasefire between Israel and Hezbollah began last Wednesday, it remains fragile, and doubts about its stability have emerged. Meanwhile, heightened tensions in the Middle East, including a new rebel offensive in Syria that risks involving multiple oil-producing nations, continue to support oil prices. South Korea’s political unrest also adds to the global risk environment.

OPEC+ – supply and demand

Oil prices fell on Thursday and Friday as investors weighed a supply surplus forecast for 2025. Despite OPEC+’s decision to delay planned output increases until April 2025 and extend deep production cuts through the end of 2026, analysts still expect an oversupply. With the OPEC+ decision now settled, the market remains concerned about weak demand and increasing production from non-OPEC+ countries, which continues to pressure oil 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

We predict the market will likely trade lower going into next week. With the OPEC+ decision out of the way, the market is still left with a sluggish demand outlook and rising non-OPEC+ production, along with uncertainty around geopolitical and global economic influences.