If you drive a vehicle for commercial or personal reasons, you’ll have noticed fuel prices fluctuating wildly in recent years. The price of diesel and petrol is subject to near-constant change. Fuel – and the oil that is refined to make fuel – is a commodity. This means that it is sensitive to changes in value caused by wider market conditions.
Unfortunately, the fluctuating price of fuel can have detrimental effects on businesses and individuals. For commercial drivers and logistics companies, changing fuel prices can make budgeting and setting prices very hard to do in advance. Fuel costs can eat into profits – especially when they cannot be accurately accounted for in pricing calculations. For individuals, fuel cost changes can drastically impact personal freedom. This is especially true for people living in rural areas, where public transport options are inadequate. Rural train links were largely closed as a result of the Beeching Report in 1963, while rural bus links suffered during the period of Austerity following the 2008 financial crisis. Road travel is one of the only links to larger towns that some people have.
For commercial vehicle operators and individuals alike, it can be extremely helpful to know about the factors that impact fuel prices so that adequate plans can be made. Here is a quick guide to the reasons behind fuel prices in the UK and around the World.
Political Turmoil
Political turmoil and war can cause fuel prices to skyrocket. If oil supplies are lost due to warfare, then prices rise. When ISIS took over important Iraqi oil fields during their brutal expansion through the country, oil prices rose. Likewise, even the potential of oil production disruption can alter prices.
Russia is one of the largest crude oil exporters in the World. After it invaded Ukraine, oil importing exports and petroleum refiners feared that supplies from Russia would dry up as sanctions were imposed by the international community. This drying up of Russian oil supplies has not materialized, but the fear of it happening still created huge spikes in fuel prices. When an oil-producing country is involved in global conflict or is being sanctioned in any way, then the price of oil will often increase. This is even true in places that produce most of their oil domestically. Market uncertainty caused by the war in Ukraine caused fuel prices to spike in the USA, even though the North American nation produces almost all its own oil.
Supply and Demand
People may remember that during the height of the Covid-19 pandemic in the United Kingdom, petrol and diesel prices dropped dramatically. When lockdowns lifted and the danger subsided, prices rose back up to pre-pandemic levels. The reason for this fluctuation is the relationship between supply and demand. During the lockdown, people were far less likely to make regular trips. For this reason, there was less demand. Companies had to sell off fuel at lower prices to get it moving. Demand increased after the lockdown lifted, which meant prices could be ‘safely’ increased by sellers. As a commodity product, fuel is highly susceptible to the influence of supply and demand. Supply and demand on a local bases also impact prices from station to station. Many carriers use a fuel card system to bypass local price changes.
OPEC Pressure
OPEC is an organization founded in 1960 that contains 13 of the world’s biggest oil-exporting countries. It was founded to maintain reasonable levels of profitability and price stability in the oil industry. OPEC – the Organization of Petroleum Exporting Countries – has a huge say in the overall price of fuel because its members oversee around 80 percent of the World’s oil reserves.
OPEC can make decisions about the amount of oil that should be produced by member nations. This impacts the supply and demand for oil products. Oil prices recently fell drastically per barrel – in part because OPEC refused to make members slow down production, which altered the supply-to-demand ratio around the world.
OPEC has been described by its critics as a ‘cartel’ holding oil and fuel prices for ransom, although its defenders point out that it ensures a degree of financial responsibility from all members. The member countries are Nigeria, Venezuela, Kuwait, Iran, Iraq, Saudi Arabia, Algeria, Angola, DR Congo, Equatorial Guinea, Gabon, Libya, and the United Arab Emirates.
Natural Disasters
Natural disasters can seriously impact the price of oil. When Hurricane Katrina swept through the Southern United States, it disrupted the extraction and refinement of oil in the area. This had massive knock-on effects on the overall price of vehicular fuel in the United States and, to a lesser extent, the rest of the world. Many experts and policymakers are extremely concerned that similar natural disasters will have an equally dire impact on the oil industry unless it takes further steps to protect facilities that may be threatened by extreme weather. Climate change (caused in no small part by the use of oil) is creating environmental conditions that are leading to extreme weather being more common. This trend is likely to continue unless fossil fuels are phased out of use as much as possible. Although this is a possibility, it doesn’t seem likely that fossil fuel usage will reduce too much in the near future.
Production and Storage Costs
Some oil is harder to get at than others. Human beings are disproportionately extracting oil from areas where it is easy to do so. In the future, the remaining oil reserves will likely be much more expensive to extract. Storage is also a factor that influences fuel prices. If there is an overly productive marketplace, there will not be enough space to cheaply store oil products. This has historically impacted fuel prices and will continue to do so.
Interest Rates
Interest rates impact the price of fuel because they impact the ability of the fuel providers to make a large profit. Massive inflation typically causes fuel prices to skyrocket at a rate that outstrips consumer ability to raise more funds.
