Fuel Price Pulse – 7th February

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 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

Russian supplies

Ukraine has intensified its attacks on Russian energy infrastructure in recent weeks. This week, the Lukoil refinery, the biggest refinery in southern Russia, was attacked by Ukrainian drones. Crude oil deliveries to the refinery have been halted, with supplies being sent from inventory.

Russia’s oil industry is under strain, with overall refining volumes dropping to their lowest levels since 2012. Geopolitical instability, especially in major oil-producing nations like Russia, tends to create uncertainty in global energy markets. This often drives oil prices higher as traders factor in potential future disruptions.

US politics and sanctions 

There’s plenty of uncertainty in global crude flows – especially with fresh U.S. sanctions putting Russian and Iranian exports at risk. Sanctions could reduce crude oil exports from major suppliers, tightening global supply. When supply shrinks, prices tend to rise.

Prices fell on Thursday after Trump repeated his plan to raise U.S. oil production, especially after the country reported a much bigger than anticipated jump in crude inventories. If the U.S. ramps up oil output – especially when inventories are high – it could lead to an oversupply in the market. More supply with steady or weakening demand typically pushes prices down. 

OPEC 

With Russian and Iranian exports at risk, buyers in Asia are turning to OPEC producers. Higher demand for OPEC oil could push prices up, especially if production capacity is already tight.

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 heating demand in the Northern Hemisphere can also increase oil consumption and pricing. 

Next Week’s Fuel Prices 

Looking ahead, we expect the market to remain stable into next week. One big development to watch is India ramping up its refining game—they’re adding 1 million barrels per day of refining distillation capacity, second only to China. This could shake up global oil flows in the long run.