Oil prices rose this week as a series of missile and drone strikes in the Red Sea throw a curveball in the international oil market, though analysts are sceptical the rise in oil prices will translate into an increase drivers will see at the pump as wider economic concerns limits the upside.
“The turmoil in the Middle East has kicked up freight and insurance rates appreciably but (has) not yet affected total global oil supply other than delaying shipments toward Europe and other regions,” Jim Ritterbusch, the president of Ritterbusch and Associates, told Reuters. These delays, however, are causing higher costs, and the diversion of traffic from the Red Sea will drive higher fuel demand for the longer journey around Africa. This additional demand has yet to be factored in by oil traders.
Whilst the crisis in the Middle East shows little signs of abating, any further increases in oil price momentum is being offset by a chronic worry about economic growth, specifically in China, and US central bank’s monetary policy. Even the substantial production outage in North Dakota this week due to server cold weather failed to have any palpable impact on prices as it may have done previously.
Top importer China clocked weaker-than-expected economic growth in the fourth quarter, while barely edging past a government growth target for the year. The data ramped up concerns over sluggish crude demand in the world’s largest oil importer, especially as a post-COVID economic rebound largely failed to materialise.
Strength in the dollar- which rebounded to over one-month highs this week, also weighed on oil prices, amid growing doubts that the Federal Reserve will cut interest rates by as soon as March 2024.
While the Fed is expected to eventually trim interest rates this year, recent signs of sticky U.S. inflation and job market strength spurred increased uncertainty over the timing and scale of the cuts.
Additionally, dismal economic data from the euro zone also fed into concerns over oil demand, while sticky inflation readings indicated that the European Central Bank was likely to keep monetary policy restrictive in the near-term.
Fuel card users can expect an increase in the region of 1.2 pence per litre as we head into next week.
