Oil prices continue to drop but future falls could be limited

Oil prices posted their sharpest weekly losses in three months last week as investors priced out the risks of a direct and wider conflict between Israel and other big oil producers in the region.

However, some analysts suggest oil prices look like it might have fallen too far, too fast.  Since reaching its peak in mid-April, crude oil has tumbled by around 10% in just a matter of weeks.

This sharp decline is partly attributed to the removal of the war risk premium, which had been gradually factored in as tensions flared between Iran and Israel. However, as hostilities between the two nations have eased and hopes for a ceasefire between Israel and Hamas have swelled amid international pressure on Jerusalem, oil prices have essentially relinquished all the gains made since early March.

There is also some apprehension regarding demand in the US, where commercial crude inventories have been accumulating more than anticipated, alongside a noticeable slowdown in the rate at which refiners are processing crude into products.

Nevertheless, the potential for further decline may be limited from here. Firstly, there remains the risk of renewed escalation in the Middle East conflict.

Additionally, economic data in Europe have shown improvement, while concerns in China have eased, bolstering the demand outlook. What’s more, ongoing supply cuts by the OPEC+ group is likely to continue in the background, limiting any bearish moves.

As head into next week fuel card users can expect another weekly drop in region the region of .50 - .70 pence per litre depending on card type.


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