RFC’s Fuel thoughts – A monthly review of prices

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It turns out trying to predict fuel prices is like trying to work out what food my toddler will agree to eat on an evening – almost impossible but we’ll give it a go anyway. Here I’ll recap on the big events impacting fuel prices during November plus have my own tantrum around pump prices.

To be or not to be in recession

Whilst the Mid Terms may have been the biggest debate across the pond in November, the other debate raging was whether the US had entered recession or not. According to the standard definition, they did.  According to the National Bureau of Economic Research, they didn’t.  Either way the US has seen a decline in activity which has impacted the strength of the dollar against the pound.  This is important as oil trades in dollars and a stronger pound helps keep fuel prices lower.

The pound wasn’t just relying on a weak dollar to gain strength though. It also rallied slightly against the Euro following the announcement that although UK economic activity fell, it wasn’t by as much as predicted.  Good to know we’re not the only ones struggling to predict the future right now.

By the end of November, the pound was back over the 1.20 mark, a level not seen since August - before the disastrous mini budget and Truss’s *cough* interesting 7 weeks in power.  It’s still low compared to the start of the year when it was trading above 1.30 but given that the UK is (definitely) in a recession it’s a positive.

The Chinese influence

Oil prices have seen a significant drop during November (no doubt much to OPEC’s dismay).  A couple of factors influencing this both relate to China – one being China’s general economic outlook, the other being China and India’s switch to Russian oil.

China’s Zero-COVID policy

As mentioned last month, demand from China has a significant impact on the oil price. Despite growing inflation they decided to maintain interest rates to stimulate growth but some sources believe that China has also now slipped into a recession

A key cause of China’s recession is their ‘zero-COVID’ policy which has been forcing millions into lockdown at a time when the rest of the world has opened back up.  Although Chinese media have taken steps to censor images, the maskless crowds at the world cup will have highlighted further to the Chinese public how restrictive the policy is and has no doubt contributed to the wave of protests now happening across the country.

China is known for keeping a tight grip on its citizens, so the impact of these protests is as yet unknown.  What is known is that the uncertainty will keep global commodity prices, including oil, in flux until the situation is resolved.

China and India’s Russian discount

Following their invasion of Ukraine, many countries, including the UK, sought to cut Russia off with a range of sanctions and embargoes, this included an embargo on all Russian oil imports.  The impact of this has been a drop in the Russian fuel price which China and India are taking advantage of.  This means lower demand for fuel from the rest of OPEC which generally results in lower prices.

It’s beginning to look a lot like…. Chaos in the oil markets

5th December could be a history defining day with regards to oil prices. On that day the next round of EU sanctions will go live which will ban the import of Russian crude oil into Europe and prevent insurance companies being involved in sales unless they agree to a price cap on Russian origin fuel. Despite the looming deadline there is a raft of unknowns.

  • The price cap has yet to be agreed
  • Sales to China and India will likely be unaffected and so have the potential to mitigate any losses Russia faces
  • Russia have yet to respond to the upcoming sanctions and cap but have planned in a meeting with Saudi on 4th December, the outcome of which appears completely unpredictable.

So what will December’s fuel price look like?

Just like my toddler’s decisions around food, the ability to predict what will happen to fuel prices in the run up to Christmas will be totally unknown until they happen.  Fixed price fuel card holders have benefited from a significant decrease in prices across November and as we start December prices are still falling slightly. However, the potential fall out from the changes outlined above mean prices could do anything so this month we’re staying sat firmly on the fence.

A tantrum over pump prices

As promised, I end this by taking a leaf out of my toddler’s book and have a tantrum over pump prices.

Pump prices do generally follow the oil price, albeit 2- 3 weeks behind.  However, what we have seen across October and November is that the spread between the wholesale petrol and diesel prices and the pump price has grown significantly – 59% and 111% respectively. Clearly someone is not passing on the fall in costs.  Given the current cost of living crisis, “frustrating” is an understatement.

The RAC has called on supermarkets to cut prices by 5p a litre.  We believe these cuts should be higher given the falling wholesale prices, yet retailers seem reluctant to drop prices or even talk about why prices remain inflated. 

The other oddity around fuel is the gap between diesel and petrol.  This gap has hit 25p recently.  A huge increase given that this gap has typically been 5p since 2003.  Comparing the wholesale diesel and petrol prices shows a reduction in the spread during November whilst the pump price spread has remained consistent.  This area likely won’t resolve until the Ukraine war ends and diesel supplies across countries stabilise.

Given that our crystal ball remains as foggy as Yorkshire, we’re entering the festive period hoping for a Christmas miracle of falling prices, but just beware of Putin’s resting Grinch face, or Opec claiming Bah Humbug!  

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Jen Green
Head of Marketing

Jen 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.