Since this was originally published (06/10/2023) the ongoing conflict in the Middle East between Israel and Hamas has escalated. The initial attack by Hamas caused a spike in oil prices as the market became concerned about supply. Whilst the Brent Crude price has seen a slight fall since the initial attack, the situation remains volatile. We'll be providing weekly updates on our LinkedIn page.
Retailers are once again facing criticism with claims that they are artificially maintaining high prices. The RAC has claimed that petrol is overpriced by up to 7p a litre and that retailers are profiteering. Whilst retailer margins have indeed been increasing, much of the pressure on pump prices is being driven much further back in the supply chain through rising oil prices and a weakening pound.
Opec+ decreasing oil supply until the end of 2023
As we have reported previously, OPEC+ - specifically Saudi Arabia and Russia – have been reducing oil output. A meeting at the start of October confirmed the reductions would stay in place until the end of year. The reasons for these reductions differ however and will have different long-term impacts.
Russia’s declining infrastructure
As part of the backlash to the Russian invasion of Ukraine, Oil companies and their suppliers pulled out of the country, leaving production to less well-equipped and less well-funded companies. Unsurprisingly, this has led to a deprecation of ‘normal’ maintenance levels. As such production levels have been impacted as equipment efficiency falls.
In addition, the price cap on Russian fuel that came into effect in December 2022 has reduced demand for Russian crude – though dependence on the source remains an unpleasant reality.
Is Saudi really worried about declining Oil demand or declining profit?
The decision by Saudi Arabia on the other hand to constrict supply could be down to several factors depending on who you believe. Many saw this as a profiteering move to support an ambitious public spending plan or an opportunity to hurt the US. Saudi though claim that it is a data led decision which reflects concern around future demand.
Mixed predictions of oil demand
So, is demand for oil falling? In the short term, no. Despite sanctions, Europe remains a buyer of Russian fuel to support their demand and whilst the post covid bounce back in the Chinese economy has been less straightforward than hoped, oil demand again remains strong. The International Energy Agency’s latest Oil Market Report backs this up, reporting that oil demand remains on track to grow in 2023.
However, in the longer term the picture is very different. Demand for EVs is growing in the US plus, the UK and Europe have bans due to come into effect in 2035 (assuming Rishi doesn’t add a further delay). Scenario planning by the IEA suggest that peak oil demand will be in 2030 followed by a rapid slow due to the impact of global Government policies to hit Net Zero by 2050.
Impact on the oil price
The impact of tightening supply has been clear. Brent Crude has shot up from 67.70 in July to 92.28 by the end of September. However, the start of October has seen a huge 9% decrease to 84.07 (correct as of 5th Oct). This sharp fall comes traders reacting to the general health of the global economy rather than actions taken by OPEC. What is unclear at the time of writing is whether the fall will be sustained enough to show any impact at UK pumps.
UK Pump Price Review
For the third consecutive month we’ve seen average pump prices increases inline with the wholesale price, with the spread between remaining somewhat consistent. The expectation had been that the rise would continue until the oil price normalised. However, the sharp fall seen at the start of October leaves hope that pump prices may fall. It also now leaves retailers open to further criticism regarding profiteering if pump prices are held steady.
Businesses can gain more control of their fuel prices and benefit from tracking the wholesale price by using fuel cards. Our tool provides quick insight into the best range of cards for your circumstances. Simply start by choosing your vehicle type below.
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.