The pump price mystery
We start this month’s review with a look at what is happening – or more precisely not happening - at the pump for diesel. Over the past few months, we have seen pump prices very gradually decrease. In the past month alone, the pump price has dropped 2.5p. In theory, this is great news. As a well-known supermarket says – every little helps. However, in comparison with the Platts base price for diesel, it really is ‘a little’. When you compare the latest prices with June 2022 when the Platts price reached its highest point, Platts has fallen 37.5ppl, whereas the pump price has fallen just 21.5p. The spread between the prices has grown from an average of 7.5p in Q1 2022 to 20.2p in Q1 2023.
So, what’s changed? Tax rates have been maintained (cheers Rishi) and the wholesale cost has been falling. The only logical explanation is that retailers are maintaining that margin for their own purposes.
For most businesses that use diesel, the sensible option is to have a fixed-price fuel card. Whilst it may limit the number of sites where you can refuel, it usually makes fuel purchases much cheaper
Consumers predominantly use petrol and are increasingly moving to EVs, so the impact of the diesel pump price is again lessened.
The above means that retailers are inflating costs for a minority of businesses that do not have fuel cards and consumers unwilling or unable to move away from diesel vehicles. If you are the former, let’s see how we can help you. If you are the latter, let's hope that the RAC’s campaigning will have an impact.
March madness in the oil markets
Whilst price changes at the pump may be minimal, the same cannot be said for the oil markets. Between 10th – 17th March, oil fell by $10 a barrel. Whilst not unusual – the market sees regular large fluctuations – it did bring the daily price to its lowest level since June 2021. By the end of the month, it had recovered to almost $80 p/b but what caused this massive swing?
A mini-banking crisis
Banking is known to play a critical role in the oil industry, as oil companies use financial markets to hedge oil prices, providing financial protection against a sharp decline in prices.
The 2008 financial crisis had a significant impact on the oil price as it played a crucial role in pushing oil prices to their all-time high of $147 per barrel in the same year but the crisis also caused significant financial turmoil in the global economy that resulted in sharp declines in oil demand, thereby leading to a steep fall in oil prices.
The most recent crisis, starting with the failure at Silicon Valley Bank, had no direct impact on oil supply and demand but did highlight a potential risk to economic stability. As the crisis spread across the Atlantic to Credit Suisse, Governments and Central Banks quickly stepped in to act and calm fears about further collapses. This quick action seems to have calmed the spooked markets. At the time of writing, the oil price was back to $78.
Trouble in the supply chain
Iraq plays a small role in terms of global oil production, contributing around 5% of global supplies. However, with the ongoing sanctions against Russia, smaller players are becoming increasingly important. As such the conflict between Bagdad and the semi-autonomous Kurdistan Regional Government (KRG) is worth highlighting.
The conflict has arisen due to a nine-year legal dispute around the legality of oil exports by the KRG to Turkey. Exports were paused on 25th March, but production continued. As full storage capacity has now been reached, production has had to be stopped completely – impacting around 450k bpd.
Both sides seem to be at a stalemate. As such, the conflict is not expected to be resolved quickly. Currently, supplies of diesel are high so a small shortage of crude is not expected to have an impact on end users. However, it’s one we’ll keep an eye on.
RFC fuel price prediction
For those dependent on pump prices, the outlook remains a bit grim. As vocal as the RAC is in the media, there appears to be little inclination from retailers to drop their prices significantly. The hope is that at the very minimum, we’ll continue to see a gradual fall in prices in the short term. Businesses with fixed-price fuel cards should continue to see decent savings against the pump. Find out more about how a fuel card could help your business.