Oil markets were thrown into turmoil once again today (Tuesday, July 14) with Brent crude climbing to its highest level in a month as the fragile ceasefire between the US and Iran appeared to unravel.
Recent renewed exchanges between the two countries over control of the Strait of Hormuz reignited concerns over global oil supplies, pushing oil prices higher, with Brent prices up 4.3% nearing $87/bbl this afternoon.
Adding to market uncertainty, US President Donald Trump announced that the United States would impose a 20% charge on all cargo transiting the Strait of Hormuz, describing the measure as “a matter of fairness”, before seemingly making a U-turn on that decision.
The International Maritime Organization had stated that there was “no legal basis” for such a charge, which would have increased uncertainty over the future of one of the world’s most important energy shipping routes.
Brent crude peaked at $108/bbl in May before falling back to around $71/bbl following the signing of the memorandum of understanding between the US and Iran, which temporarily eased fears over supply disruption. However, since July 2, crude prices have rebounded by 21%.
The impact is already being felt in European refined products, with UK wholesale diesel prices increasing by more than 10ppl since the start of July.
Sterling-based wholesale costs have been hit by a double blow. Alongside higher international diesel prices, the GBP/USD exchange rate has weakened as investors have sought the relative safety of the dollar amid rising geopolitical uncertainty, amplified the increase faced by UK fuel buyers.
Retail margins had only recently normalised, with the spread between wholesale and pump prices returning to around its six-month average. As a result, retailers are now expected to pass higher costs through to consumers.
Evidence of this is already emerging. Since July 9, diesel price increases have outnumbered price cuts by 4.6 to 1, pushing the national average pump price higher and suggesting the market has already passed its recent low point.
Petrol is following a similar trajectory. Although wholesale unleaded prices have risen sharply, pump prices have so far remained relatively stable, reflecting the lag between wholesale market movements and retail pricing.
That protection is unlikely to last. As forecourts replenish stock at higher replacement costs further increases in unleaded pump prices are expected over the coming days and weeks if wholesale markets remain at current levels.
- James Hitchman is operations director at fuel pricing data specialist myAutomate
