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Rising Costs and Global Demand Impact Fuel Prices Worldwide
Oil prices are poised to reach a significant milestone, nearing $100 a barrel for the first time in 2023, following a remarkable surge of nearly 30% since June. Key factors driving this surge include production cuts from Russia and Saudi Arabia, coupled with increasing demand from China.
[bm-undefined embedId=”307852102563439fa7d193066a4208a5″]Brent crude, the global oil price benchmark, recently reached a 10-month high, almost touching $94 a barrel, compared to its lowest point of $72 a barrel in June. This substantial increase marks its most substantial quarterly gain since Russia’s invasion of Ukraine.
West Texas Intermediate (WTI), the lighter U.S. crude benchmark, has mirrored this trend, climbing from $67 a barrel to $90 a barrel over the same period. Both benchmarks have experienced approximately a 4% increase in just one week.
The United Kingdom has seen a modest rise in petrol and diesel prices, with an additional 10p per liter added since June. The RAC reported that the average price of unleaded fuel stood at £1.52 per liter on Friday, up from £1.43 in June.
In the United States, where taxes make up a smaller portion of pump prices, gasoline prices have surged by more than 10%, reaching $3.90 (£3.15) per gallon (3.8 liters).
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The demand for flights in the U.S., Europe, and China has further exacerbated the situation, leading to a significant increase in jet fuel prices, which averaged $3.07 per gallon by the end of August—a remarkable 50% rise from a recent low of $2.05 in early May.
Saudi Arabia’s recent decision to extend production cuts of 1.3 million barrels per day (bpd) through the end of the year has accelerated the reduction of global oil inventories. Additionally, Russia’s supply cuts have bolstered the efforts of other OPEC countries to push oil prices toward the coveted $100-a-barrel mark.
The International Energy Agency (IEA) has cautioned about a “significant supply shortfall” resulting from ongoing supply cuts by these leading OPEC+ nations, which poses a substantial threat to continued price volatility. This warning comes as OPEC reported an impending deficit of more than 3 million bpd in the upcoming quarter, potentially marking the most significant supply shortage in over a decade.
Concerns also loom over the long-term outlook for oil, as the IEA predicts that demand may peak before 2030, possibly as early as 2026, due to the rapid transition to renewable energy sources.
The rising cost of fuel and China’s robust oil demand, as the world’s largest oil importer, is expected to complicate the efforts of central banks to curb inflation rates that remain above the 2% target level. The fall in oil prices earlier this year contributed to declining inflation, but the recent surge is expected to counterbalance this trend, affecting inflation rates into 2024.
Financial markets have shown a growing interest in oil trading, with analysts acknowledging the impact of OPEC+ decisions and the tightness of the oil market in the fourth quarter.
