It was Mark Twain who famously noted that prediction is difficult - particularly when it involves the future. Predicting the immediate future of oil prices, and therefore what you’ll pay at the pump for petrol and diesel, is proving particularly difficult in uncertain economic times. There are aways several factors at play determining the price of this most vital of commodities, and right now those factors are particularly fluid, if you’ll pardon the pun.
On the one hand, global crude oil inventories are predicted to decline in the coming months. That’s because oil traders with millions of barrels of crude are expected to start selling them to reduce the cost of storing it all in the face of rising interest rates. On top of that OPEC, the Organisation of Petroleum Exporting Countries, is committed to cutting its output throughout 2024. That’s all contributing to a reduction in supply.
And on the other hand, there’s the prospect of rising demand for oil, especially from China, and its factories, which are now recovering from its Covid-induced slowdown. Adding to increased demand is the rebound in global air traffic, with the International Air Transport Association (IATA), reporting a 143% increase in passenger kilometres in the Asia Pacific alone last May. Air traffic in China is also rising dramatically, while elsewhere in the world there’s double digit growth too.
Rising demand, tight supply
So that’s rising demand in the face of reduced supply, that’s got to be a recipe for rising oil prices, surely? No wonder OPEC’s members have a smile on their faces and are feeling confident. So, is it time to get used to grinning and bearing it as we pull up to the petrol pump? Well perhaps not, because there are a few uncertainties to throw into the equation.
The biggest of them is the threat of global recession. Right now, central banks around the world, including our own RBA, are stepping up interest rates to curb inflation. The theory is that by doing so they’ll slow the economy and reduce the excessive demand that’s supposedly driving inflation. Increasing interest rates to control inflation has always been a blunt instrument, and the cause of the current inflation has been questioned by many economists. But if you’re a central banker, then it’s the only tool you have to control inflation, or in other words, when you’re a hammer everything else is a nail.
The very real danger from all this raising of interest rates is that the various central banks will overdo it and plunge the economy into a recession. If that happens the economy will shrink, people will stop travelling, household budgets will be reined in, and we’ll all be using less oil. As a result, oil prices should fall, not rise.
But that’s far from the only uncertainty that could impact what you’ll be paying at the petrol pump. There’s the ongoing war in Ukraine, which is impacting the price of Russian oil for one thing. Another is the possible threat from a mutant strain of Covid. Coronaviruses have a high mutation rate, so it remains a real possibility. Then, of course, there are the “unknown, unknowns” that can always throw the world economy into a tailspin.
As I said at the beginning, prediction is difficult, and always uncertain, but one thing that is certain, no matter what’s happening with fuel prices, is that they’ll always be cheaper with a Fleetcare Fuel Card. It’s the perfect way to enjoy discounted fuel from more than 4,500 fuel stations nationwide, and the convenience of monthly billing and streamlined reporting. So why not call Fleetcare today on 134 333 to find out how a Fleetcare Fuel Card is the easy way to save your business a heap of money, time and hassle.