It was a bumpy start for 2024 as there were disruptions in oil supply across the globe, causing volatility in the market and fluctuating prices for consumers. These events will likely have a long-term impact so predicting future fuel prices is more challenging, but we’ll give it a try.
What’s impacting fuel prices?
Global events directly impact UK pump prices, so volatility elsewhere leads to fluctuating fuel prices here. Although predictions for 2024 were positive, unforeseen circumstances destabilised the fuel market in January.
Conflict in the Middle East
Unrest in the Middle East continues to negatively impact oil supply. The recent conflict with Houthi militants in Yemen and the Red Sea disrupted a vital trade route between Asia and Europe. To mitigate risks, tankers were diverted to longer routes, such as the Cape of Good Hope, but the continual geopolitical tensions have raised concerns about further disruptions in the oil supply chain.
However, an unverified ceasefire between Israel and Hamas did lead to an immediate drop in oil prices with a decline of more than 2% being reported in the last week of January. A potential ceasefire would settle the disruption of vital Gulf and Red Sea shipping lanes, easing global distribution, and helping to stabilise fuel prices.
With the Middle East holding such an important position in the oil market, further conflicts will undoubtedly have a ripple effect and cause prices to rise once again.
Back in November, OPEC+ agreed to voluntary output cuts totalling around 2.2 million barrels per day (bpd) for the first quarter of this year with Saudi Arabia leading the way with a 1 million bpd voluntary reduction. This initiative aims to prevent a global supply surplus amid slowing demand growth which in turn leads to higher crude oil prices.
OPEC+ have now announced that they plan to maintain this production policy until March when the impact of this strategy can be assessed more thoroughly. This means that, until normal OPEC+ output resumes, UK fuel prices may continue to rise.
The impact of the USA
The number of diesel exports from the US Gulf Coast to Europe broke records in January. As Europe sources around one third of its diesel supply from the Middle East, US exports offered a much-needed lifeline during this period of turmoil. However, scheduled maintenance programs could knock back US stocks levels, causing prices to spike.
US sanctions on Iran’s crude exports have also added to the price volatility, with Iranian exports decreasing from 3 million barrels a day to around 1 million barrels per day. The significant reduction in supply has intensified crude prices even further.
What will happen to UK pump prices?
Although the average price of fuel in the UK was the lowest it’s been for over 2 years, January brought an end to three consecutive months of falling pump prices. However, there is a big disparity in prices depending on where you refuel in the UK. Last month, a 14p difference was reported between the cheapest and the most expensive supermarket fuel.
The UK Government is trying to help with the pump price postcode lottery by introducing a PumpWatch scheme. This will force fuel retailers to share live information to the public on price changes within 30 minutes, making it easier for drivers to find the cheapest petrol and diesel.
However, this will not impact drivers with a fixed-price fuel card and it’s unlikely it will help to bring pump prices down.
With the ongoing conflict in the Middle East and growing concerns that Europe will be squeezed by supply issues over the next few months, the outlook on fuel prices in the UK is somewhat bleak. Gasoil futures, the global benchmark, have risen by 15% from mid-December, so further fluctuations in fuel prices should be expected.
Although the oil market is now relatively stable on the back of weaker global demand, we’ve seen how quickly this can change, so we hope that if fuel prices do rise that they’ll soon settle down again.
Jen GreenJen has extensive experience across a range of regulated industries. Her research on the monthly market movements for oil and how they will impact prices at the pump has been featured in numerous publications, including the Transport Operator and Fuel Oil News.