The fragility of the global economy in the light of the trade war between the US and China continues to weigh on oil markets, keeping benchmark Brent crude oil futures bobbing around the $60/bl mark.
UK motorists felt none of the benefits of the lower bulk prices with prices at the forecourt broadly unchanged on the month. The increased likelihood of a no-deal Brexit took sterling to fresh two-year lows against the US dollar, the currency used to buy and sell oil on international markets.
Brent futures closed out August at $60.43/bl, nearly $5/bl lower than the end of July.
Macro-economic data showing the German and UK economies shrank in the second quarter also suggested oil demand would be dented ahead of the peak winter demand season.
Seasonality should also affect the price of diesel relative to gasoline in the next two months. Typically, gasoline demand from the US dies with the summer, leading to a glut in Europe, which produces more than it uses in domestic markets.
The premium for diesel to gasoline at the pump could well be higher than usual this winter. Legislation from the International Maritime Organization, enforcing lower sulphur standards for ship fuels from the start of 2020, will see more ships running on marine gasoil. This is expected to have the knock-on effect of reducing diesel output from European refineries, tightening a market that is already reliant on imports from the US and the FSU and susceptible to price spikes.
A diplomatic initiative was started by French President Emmanuel Macron at the G7 summit in Biarritz. France is looking to allow Iran to continue selling oil despite US sanctions to try and salvage the nuclear deal torn up by President Trump. The US has sounded more receptive to the idea than earlier bellicose rhetoric from Washington has suggested. The hardball negotiations by Trump with Iran could have the unwanted side-effect of Beijing turning a blind eye to sanctions-busting and becoming Iran’s favourite customer another unintended consequence of trade war diplomacy.