Fuel Price Pulse – 14th February

We share our insights into the factors impacting fuel prices, including predictions for fuel costs as we head into next week.

What determines fuel prices?

Wholesale fuel prices govern the price you pay for petrol and diesel at the pumps. Wholesale prices are influenced by a range of factors, including supply, demand, and pricing for crude oil, oil refinery production levels, the pound-to-dollar exchange rate, socio-economic and political factors that might impact production/demand, the margin (profit) taken by fuel retailers, and fuel duty and VAT charged by the Government.

What’s impacting fuel prices this week?

Fuel prices are expected to rise, with the market currently trading slightly higher than this time last week.

US economy and trade tarrifs:

Oil prices are climbing after President Trump delayed reciprocal tariffs on countries that tax US imports until April. This decision allays fears of an imminent trade war, boosting market confidence and demand expectations, which, in turn, pushes prices higher.

The US Federal Reserve has signaled that interest rates will not drop quickly unless economic data weakens. Higher interest rates make borrowing more expensive, which can slow down economic growth and reduce oil demand.

Oil production – supply/demand:

US oil production remains high. As the world’s largest oil producer, when the U.S. produces more oil, global supply rises. Generally, if the oil supply increases, prices at the pump respond by going down. However, at the same time, OPEC continues to limit its supply. Even though OPEC has more spare production capacity than it has had in over a decade, it is choosing to keep supply restricted, which increases oil prices.

Geo-politics:

A call between President Trump and President Putin may lead to peace talks in the Ukraine-Russia conflict, but there is concern that the US might offer concessions to Russia. Any shift in US-Russia relations could affect energy markets, particularly regarding sanctions on Russian oil and gas.
The US has also ramped up pressure on Iran, a key OPEC oil producer, aiming to block its crude exports entirely. If Iran’s oil supply is reduced, global supply tightens, increasing oil and fuel prices.

Supply, demand and other factors:

• While geopolitical tensions can cause market uncertainty – especially in oil-producing regions such as the Middle East and Russia – global economic performance can slow demand and impact prices.
• Oil is traded in U.S. dollars, so fluctuations in the dollar’s value impact oil prices. A stronger dollar makes oil more expensive for other currencies, potentially lowering demand.
• Seasonal factors like heating demand in the Northern Hemisphere can also increase oil consumption and pricing. This is expected to increase demand over the coming week.

Next Week’s Fuel Prices

With these developments, we anticipate that the market will continue to trade higher into next week, keeping fuel prices on an upward trajectory.