Demand concerns drive oil prices lower

After several weeks of upward momentum on the back of increased demand (mainly driven from China) oil prices fell this week to show their steepest decline in about a month as fears returned to the markets that global fuel demand will soften as worldwide central banks hike interest rates to fight surging inflation.

With inflation near double-digit territory in many top economies, central banks could resort to more aggressive interest rate increases, slowing economic growth and stemming fuel demand.

The markets will wait to see the outcome of the meeting of the Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russia, known collectively as OPEC+, who are due to meet next week.

Saudi Arabia last week raised the possibility of production cuts from OPEC+, which sources said could coincide with a boost in supply from Iran should it clinch a nuclear deal with the West.

In another possible supply boost, Venezuela's oil minister said the country was ready to move ahead with business with the oil major Chevron Corp, adding that progress to relaunch the operations depends on licenses from Washington.

With most producers already operating at or above capacity and growing signs that the global economy may be slowing, some reduction of supply is looking increasingly likely in the coming months, said Matt Weller, head of research at FOREX.com and City Index.

With this in mind, oil prices are likely to remain volatile as we enter into the Autumn period as the markets balance the worsening global economic situation against ongoing supply constraints.

The retail landscape remains static with a broad range of fuel prices in the region of £1.80ppl for diesel, fuel card users can expect to see a welcome drop in the region of 5ppl for next week.

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