Following record prices in 2022, oil prices remained largely flat across 2023 providing some relief to UK consumers and businesses alike. The steady oil price helped push down the price at the pump by an average of 10 pence per litre across the year. However, at over 140 pence per litre for petrol and almost 160 pence per litre for diesel, the prices at the pump remain significantly higher than they were before the breakout of the war in Ukraine.
Conflict remains the theme as we start 2024. Whilst the initial spike in price at the start of the latest conflict in Gaza subsided, it remains a closely watched situation. The conflict has remained contained within a small area with little direct impact on oil production or supply. However, there remains a risk that if the conflict spreads supply could be disrupted, pushing up prices.
Though the conflict itself has not directly impacted the oil supply, reaction to it has. In December, the Iran-aligned Houthi of Yemen began attacking ships in busy Red Sea shipping lanes that they believed were supporting Israel.
The US is leading a multinational maritime protection force to jointly address security challenges in the area. At the time of writing, there was no published plan of how the force would address the situation. A joint statement was released on the 3rd of January 2024 condemning the attacks, but this appears to have been ignored by the rebels. The UK government has publicly discussed the potential of air strikes should the situation continue.
These shipping lanes are used regularly by oil carriers and global cargo shippers as the route through the Suez Canal in Egypt is the most efficient shipping route to move goods from the far East to Europe and North America. While the attacks have focused on cargo, rather than oil, BP took measures in December to re-direct its shipments around Africa resulting in significant increase in costs and delays.
Normally any impact to supply would lead to an uplift in price. However, the Brent crude oil price declined across Q4 2023 ending the year just $78 a barrel and has continued to slide at the start of 2024.
However, any falls in price driven by actions by OPEC+ may be outweighed by the situation in the Red Sea. As previously mentioned, BP among others, is re directing its ships around Africa’s Cape of Good Hope. Whilst undoubtedly a much safer route for both staff and cargo it adds 3500 and nautical miles [approximately 6500 kilometres]. None of this additional time or travelling is free and it’s unlikely all suppliers will be able to absorb the additional costs. As such it is likely that the Red Sea security situation will have a significant impact on global inflation figures at a time when governments were starting to sigh with relief.
RFC Edenred will continue to track this situation along with all the other impacts on the oil market. Whilst we hope to see prices continue to decline – and there is certainly scope for the pump price to decrease substantially from it’s current position – we expect another turbulent ride when it comes to the oil price!
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.