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What’s next for the price of oil?

Sometimes you just can’t win. At a time when so many of us were socially isolating at home with our cars tucked away in garages and going nowhere, fuel prices plunged to their lowest levels in decades. At one stage while we were all baking, crafting and building in self-isolation, petrol prices in Australia’s cities dropped to under $1/litre.

So, what brought that on? Well it was an unusual combination of oversupply made worse by a sudden crash in demand. And of course, geopolitics played its usual role in the price of oil. Russia and Saudi Arabia started a massive price war, with the Saudis attempting to slow production. The coronavirus turned slack demand for oil into nearly non-existent demand as the world shut down for business.

Too low for zero

What happened then got really weird. The price hit $0/barrel and kept heading south. Yep, they were paying people to take it off their hands and store it somewhere. You see, you can’t just turn oil wells off and on like a tap. Turning them off isn’t the problem, it’s turning them back on again. That costs money. Lots and lots of money.

At the start of the year the global benchmark Brent crude was around US$66/barrel. By March it was $22/barrel and by late April future contractors were paying people $37/barrel to take the unwanted stuff off their hands.

But now of course, when there’s just a whiff of freedom and the sense of normality returning, those fuel prices look like rising. Damn! The question is by how much? It’s by no means clear-cut because a lot of factors are at play.

Rising demand

What’s not in doubt is that demand is going to rise with Australia and other parts of the world now starting to ease out of lockdown. People are heading to work again and getting out and about. It’s quite possible that people may avoid public transport in favour of their cars for a while before increased traffic congestion gets the better of their resolve. On the flipside, it’s also likely that working from home may prove attractive to some workers and business alike, taking some vehicles off the road. It’s all a bit up in the air at the moment.

However, right now the world is drowning in crude oil. Around the world supertankers are moored off the world’s ports loaded with oil, so any big supply-led price increase is probably some way off. The price war has caused US shale oil producers, with their higher costs, to cut production at a furious rate. The price war may have started between the Saudis and the Russians but it’s the Americans who have been worst hit in the crossfire.

Uncertain future

In the midst of such turmoil and economic uncertainty it’s hard to predict future prices with any certainty. However, there’s a rough consensus that demand is still going to remain pretty low for some time in the face of what’s shaping up as the worst recession since the Great Depression.

There’s not much upside to the coronavirus and its accompanying economic collapse, but lower fuel prices will at least help some businesses to cut their costs and carry on. In some cases, it might even be crucial to their survival.

Cutting fuel costs is always important when you run a fleet. That’s just one of the reasons why outsourcing your fleet management makes so much sense. Your dedicated Fleetcare account manager works to find you savings with further fuel discounts, utilisation reporting and whole-of-life cost reduction initiatives.

For more information about how Fleetcare can help your business, call us on 134 333.

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