After weeks of gains, the wholesale price of oil has fallen. The dip in fuel prices has been mostly due to global financial markets digesting a mix of gloomy economic data on the back of several factors, including inflationary pressures, rising interest rates, and the worsening COVID situation across China. All these growing macroeconomic factors outweighed the ongoing supply concerns and increased tensions across Europe that have pushed oil prices higher since the Russian invasion of Ukraine in February.
Economic concerns have been building this year as The Bank of England's Monetary Policy Committee (MPC) has raised its key interest rate four times since December. It currently stands at 1%: the highest level since 2009.
Howie Lee, an economist at Singapore's Oversea Chinese Banking Corp, stated: “Those recession concerns are drumming louder and taking oil lower," but he still expects inflation to exceed 10% by the end of this year.
Massachusetts Institute of Technology professor Kristin Forbes, who served on the MPC from 2014 to 2017, told lawmakers that she was concerned the Bank of England had not been clear enough about the scale of rate hikes that might come. All of which will dent consumer spending power and hurt the UK economy.
Price increases have also been challenged by growing concerns of demand destruction in China as it attempts to curb the spread of the coronavirus. The recent increase in COVID infection rates has seen both Shanghai and, more recently, Beijing enter strict lockdowns.
"Until we see some significant policy support coming through in China or policymakers adopt an alternative strategy to COVID, oil prices could remain capped near term," said Stephen Innes, managing partner at SPI Asset Management.
In the UK, pump prices have risen on the back of recently reported oil market gains and will hold higher over the coming week. Fuel card users can expect to see a welcome dip in the region of 3.5ppl for diesel, depending on their card type.
