Fuels prices rally as OPEC mulls supply cuts and China deploys economic stimulus
Oil prices edged higher this week, on course for strong weekly gains as China attempted to boost demand while global supply continues to remain very tight.
On Thursday, the Chinese government announced plans to top up its economic stimulus to 1 trillion yuan (around $150 billion). This attempt to restore an economy that has been ravaged by drought and COVID-19 restrictions during the first part of the year has been well-received by the oil market. This is due to China being the largest oil importer in the world and these changes being likely to drive demand.
Additionally, earlier in the week, Saudi Energy Minister Prince Abdulaziz bin Salman flagged the possibility that the Organization of Petroleum Exporting Countries and allies, a group known as OPEC+, could cut production, boosting the market, and raising prices further. It is likely that OPEC+ want to maintain oil at $100 per barrel, regardless of the economic damage.
This news has added positive momentum to a market that had already been boosted by the release of data by the Energy Information Administration. This data, covered in last week’s blog, showed that U.S. crude inventories fell by much more than expected. These factors have added upward pressure to oil prices and offset the wave of economic headwinds much of the world is facing.
Despite this, there may be light at the end of the tunnel. Investors are monitoring the progress on the revival of a nuclear deal with Iran, which could lead to the resumption of crude exports into the global market from the OPEC producer, which has the potential to ease prices. However, news yesterday suggests that the U.S. has rejected the additional conditions that Iran has made in the talks discussing the Iranian nuclear deal. This suggests that there is still some way to go.
In the UK, there appears to be a real mix of fuel prices. Diesel is ranging from as low as £1.78ppl to £1.99 pence per litre. However, the lower price points are likely to increase over the next two weeks as retail forecourts catch up with the past few weeks of wholesale price rises.
