The international crude and petrol markets that underlie fuel prices in UK forecourts are tightening for separate reasons, keeping prices at the pump well supported.
Crude production cuts by Opec members and other producers are starting to achieve what they set out to do, namely rebalance the market by reducing the global oversupply. Brent futures rose to an average $53.94/bl in April (update on May 2), up from $52.54/bl in March, and almost $10/bl (xupdate on May 2) above April last year.
But it is becoming increasingly clear that Opec will need to keep up its discipline well beyond June to run global stocks down to anywhere near historical levels. European and US oil stocks are below what they were a year ago, but only just, and remain well above the five-year average.
Refinery margins will also be crucial for UK retail fuel prices in the coming months. Europe is long on petrol and demand from export markets tends to set the price. The main one, the US, is starting to gear up for its summer driving season. Drivers on average consume some 1.5mn b/d more petrol in June-August than in the first quarter incremental demand as large as the UK’s entire refining capacity.
This year, US petrol demand in April has been slightly below a year ago but comparatively low outright prices are still encouraging US car owners to drive more than in 2011-2014, when crude oil prices were mostly above $100/bl. US importers are already gearing up for a strong season this year, and spot fixtures to ship petrol across the Atlantic were 57% up on March. This helped increase European refining margins for petrol in April by $4.60/bl or 50% from March. Refining margins for petrol tend to be seasonally high until at least July and will keep retail prices, including in the UK, further above crude prices than in the winter. US demand has driven European wholesale petrol prices above diesel. But in the UK, blending of expensive biodiesel from used cooking oil has kept diesel at the pump at a premium to petrol.
Brent futures rose to an average $53.82/bl in April, up from $52.54/bl in March, and more than $10/bl above April last year.