New warning signals are emerging for drivers as global oil prices surge to their highest point in 10 months. Brent crude, a key price benchmark, exceeded $95 per barrel on Tuesday due to
predictions of dwindling supplies.
The International Energy Agency (IEA) expressed concerns that Saudi Arabia and Russia's decision to cut production could lead to a "significant supply shortfall" by the end of the year.
The RAC motoring group cautioned that drivers should brace for higher costs at the pumps.
Recent data reveals that UK drivers are currently paying an average of £1.55 per litre for petrol and £1.59 for diesel, compared to approximately £1.44 and £1.53 in May. Since the beginning of August, petrol prices have risen by 10 pence per litre, while diesel prices have increased by 13 pence.
Following Russia's invasion of Ukraine in February 2022, oil prices surged, reaching over $120 per barrel in June of the same year. Although they dropped back to slightly above $70 per barrel in May 2023, they have been steadily climbing as producers aim to limit output and stabilize the market. In August, Saudi Arabia and Russia, both major oil-producing nations and members of the Opec+ group, decided to reduce production.
Simultaneously, the US Energy Information Administration reported on Monday that US oil production in its leading shale-producing regions was set to decline in October for the third consecutive month, reaching its lowest level since May.
Saudi Arabia, a major exporter and a leading figure in the oil industry, seeks to maintain elevated oil prices to ensure a steady income while diversifying its economy. However, the West has accused Opec of price manipulation.
Motoring groups emphasize that petrol and diesel prices have surged in recent months, and further increases could be on the horizon due to crude oil being a primary component of fuel.
The AA cautioned that rising prices come at a time when fuel efficiency tends to drop due to shorter daylight hours. Luke Bodset, the AA's spokesperson on pump prices, highlighted the 10 pence per litre increase in petrol costs since August and noted that electric car owners may be among the few feeling content.
RAC fuel spokesperson Simon Williams warned that with oil nearing $100 per barrel, drivers could expect challenging times at the pumps. However, he added that an increase to three figures should only raise the average price by an additional 2 pence, although he cautioned that if retailers aimed to boost margins, petrol prices could approach 160 pence.
Financial analysts have raised concerns that surging global oil prices may affect inflation rates in many countries. Inflation experienced a sharp increase in 2022 and has only recently started to recede. Sophie Lund-Yates, lead equity analyst at investment firm Hargreaves Lansdown, mentioned that the symbolically significant $100 per barrel mark is now being considered once more. She emphasized that fuel represents a significant portion of overall inflation, making this development challenging.
The Office for National Statistics (ONS) is set to release the latest UK inflation figure on Wednesday, with inflation remaining high at 6.8%. In recent years, households have faced rising fuel and energy costs, while businesses have raised prices to cope with escalating expenses. The depreciation of the pound may have also contributed to higher fuel costs, as oil prices are influenced by the pound-to-dollar exchange rate, given that Brent crude is traded in dollars.
Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman defended Opec+'s decision to limit supply, asserting that energy markets required prudent regulation to mitigate volatility. Photo by Stacey Harris, Wikimedia commons.