RFC February ‘23 opinion on fuel prices

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As we enter the year of the Water Rabbit, we hopefully enter what is considered by Chinese culture, to be a year of peace and prosperity.  If someone could let Putin know, that would be great.

As far as prosperity is concerned, we do start the year positively when it comes to buying fuel, as oil prices have remained under the $90 per barrel mark since the start of the year. Here we’ll recap some of the factors impacting the recent price changes and try our luck at predicting the future*.

Chinese demand for oil increases

As China celebrates the beginning of a New Year, it is also taking tentative steps out into a new post covid world.  It appears these steps may be a little bigger and faster than economists first predicted, with the IEA now warning that “producers may need to reconsider output”. This has already had an impact on Brent, with prices climbing back up to $87/b after an initial drop at the start of January.

Global air traffic may return to pre-Covid levels in June

Keen to get back into the world, China’s release from quarantine is expected to drive up airline passenger traffic in 2023, with an expectation that global traffic will be on par with pre covid levels by June.  Chinese demand alone is expected to potentially add around 400,000 bpd to global oil demand, worth an extra $7/b according to Goldman Sachs.

Whilst this is obviously great news for the companies, the staff, and investors; it does raise the question of whether green campaigners will be able to influence the general public to cut back on aviation in order to reduce the environmental impact. It also adds to the increasing demand on fuel suppliers which has the wider impact of pushing up prices.

Global warming is in the air

So, with all the increased demand from China, the expectation would normally be that prices would increase.  They do still have the potential too but global warming – and the fact that the past winter and future temperatures are expected to be warmer – mean that overall demand, although still rising, is being tempered.

Price cap on Russian Fuel

Back in December, the EU imposed a price cap on Russian fuel to put even more pressure on Russia’s finances, with the ultimate aim of stopping the war in Ukraine.  Whilst there doesn’t appear to be any immediate ceasefire on the horizon, it has been calculated that the cap is costing Russia around €160m per day, a drop of 17%. There’s little Russia can do to recoup this loss and the likelihood is that they will grow as Europe continues to reduce its dependency on Russian supplies. 

A further hit to Russia’s purse strings will be from Diesel.  Although the diesel cap was set higher at $100 there are fewer buyers than for its crude.  China, for example, has taken advantage of cheaper crude oil from Russia but as a net exporter of diesel who has seen huge increases in exports last year, it has no need for more from Russia.

Could diesel have a rockier year than oil?

In the past, the pump price has generally followed a similar pattern to oil, albeit with a few weeks' delay.  At the end of last year, oil prices dropped substantially but pump prices remain stubbornly high.  The RAC have pointed out that part of this is likely due to retailers not passing on savings.  However, a large part reflects that whilst demand for the product is increasing, supply (at least within the UK) has stagnated resulting in an increase in imported diesel.  In future articles, we’ll keep a much closer eye on diesel production as this will likely have a more direct impact on pump price.

RFC fuel price prediction 

For those on fixed prices, the immediate future looks good.  Prices have dropped substantially over the past couple of weeks and even if this reduction slows or reverts to a small increase, overall prices should be relatively flat.  Those hoping to see decreases at the pump are likely to be less fortunate.  Whilst December and January did see some decrease, retailers will be wary of dropping prices if they are able to sustain a better margin. Particularly if sales of other products fall as consumers tighten their belts.

Of course, this is just our opinion so, we may not be right!

*(Note: your writer was born in the year of the rat which is meant to be unlucky this year so maybe take any predictions with a large pinch of salt).

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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.