Warning Issued as Oil Hits 10-Month High: Fuel Prices Set to Soar
Motorists are facing a bleak outlook as global oil prices surged to their highest levels in a decade, prompting concerns of rising fuel costs. On Tuesday, Brent crude, the benchmark for oil prices, breached the $95-a-barrel mark amid growing fears of dwindling supplies.
The International Energy Agency (IEA) has sounded alarms, warning that a recent decision by Saudi Arabia and Russia to reduce production could lead to a “significant supply shortfall” by year-end. As a result, the RAC motoring group has cautioned that drivers should brace themselves for steep increases at the pumps.
Recent statistics reveal that UK drivers are now shelling out an average of £1.55 per litre of petrol, with diesel prices hovering around £1.59. Since the beginning of August, petrol prices have witnessed a staggering 10-pence-per-litre increase, while diesel prices have surged by 13 pence.
The spike in oil prices can be traced back to Russia’s invasion of Ukraine in February 2022 when oil prices skyrocketed, hitting over $120 a barrel in June the same year. Although they dipped to slightly above $70 a barrel in May 2023, prices have been on a consistent upward trajectory as producers attempt to limit output to stabilize the market. Saudi Arabia and Russia, two of the world’s largest oil producers and members of the OPEC+ group, opted to reduce production earlier in August.
The US Energy Information Administration also contributed to the tension, reporting on Monday that US oil output from its top shale-producing regions was expected to decrease in October for the third consecutive month, reaching its lowest point since May.
While Saudi Arabia aims to keep oil prices elevated to ensure a steady income while diversifying its economy, the West has accused OPEC of price manipulation. As petrol and diesel prices have spiked in recent months, motoring groups caution that further increases could be in store due to crude oil being the primary component of fuel.
The AA raised concerns that rising prices are coinciding with a time when fuel efficiency typically drops due to darker evenings, leading engines to work harder with increased use of heaters and lights. Luke Bosdet, the AA’s spokesman on pump prices, pointed out that drivers have been hit with a 10-pence-per-litre rise in petrol costs since the beginning of August. While mild weather and daylight during rush hours have provided some relief, Bosdet noted that drivers with electric cars are the ones experiencing fewer concerns.
RAC fuel spokesman Simon Williams echoed these concerns, stating that with oil prices approaching $100 a barrel, drivers are “in for a hard time at the pumps.” However, he suggested that crossing the three-figure mark would likely increase the average price by only an additional 2 pence. Williams also warned that if retailers aim to increase their margins, this could drive the average petrol price closer to 160 pence.
Analysts are cautioning that the surge in global oil prices could have an impact on inflation rates in many countries. While inflation rates had surged in 2022, they have only recently started to decrease. Sophie Lund-Yates, lead equity analyst at investment firm Hargreaves Lansdown, noted that the symbolically significant $100 per barrel mark is being reconsidered, with fuel accounting for a significant portion of overall inflation.
The Office for National Statistics (ONS) will release the latest inflation figures for the UK soon. Inflation has been on the rise in recent years, with households experiencing higher fuel and energy bills, while businesses have raised prices to cope with rising costs. A recent drop in the pound’s value may have exacerbated fuel price increases. In addition to supply and demand, oil prices are also influenced by the exchange rate between the pound and the dollar, as Brent crude is traded in dollars.
Prince Abdulaziz bin Salman, Saudi Arabia’s Energy Minister, defended OPEC+’s decision to limit supply, arguing that energy markets require careful regulation to curb volatility.
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