UK road fuel prices are at their highest for four years, underpinned by high crude prices and robust middle distillates demand. US trade policy and its ramifications, as well as supply expectations, again dominated the market, pushing prices first down, then up again in the past month.
Underlying Ice Brent futures closed August at $77.42/bl, more than $3/bl up on the month, after having fallen below $71/bl in mid-August.
Signals by China that it might exempt US crude from a 25% retaliatory tariff on US goods helped soften the market in the first couple of weeks in August. Brent futures fell to their lowest since April, when Libyan crude production climbed back to more usual levels after the Libyan National Oil Company regained control of major oil infrastructure. Russian output is also up on the year.
The extra supply helped soften concerns over falling oil exports on other fronts. Still, signs that Venezuela’s economic quagmire is deepening its oil production problems helped push prices up again. And indications that Iranian exports are already faltering under the pressure of impending US sanctions injected a further bullish note into the market towards the end of August.
Talk might be rife of the US-China trade war threatening global economic growthand indirectly oil demand but for now, demand for middle distillates remains strong. Diesel prices in Europe have more than kept up with rising crude, swelling refining margins for the product to almost $16/bl on average in August, their widest for more than three years. Even problems shipping middle distillates south on the river Rhine after weeks of extremely low water levels has not dented European diesel margins.
So diesel prices remain above gasoline, despite continued robust demand for European gasoline in export markets. US consumption has risen to an all-time record after a lacklustre start to the driving season, and the Mideast Gulf is sucking in cargoes from Europe to fill the gap left by unplanned refinery outages. With the end of the US driving season, gasoline margins look set to fall against diesel, compounding diesel’s premium to petrol for UK drivers at the pump.