- Global fuel prices have risen exponentially in the last few months.
- Global fuel markets began to tighten in June after the OPEC+ exporters decided to suppress oil supplies.
- The new BRICS+ group comprises six nations that collectively account for about as much global fuel as the other 20 top oil-producing nations.
Russia’s invasion of Ukraine in February 2022 threw global fuel markets into disarray. Consequently, the world experienced the first real global energy crisis during the uneven economic recovery from the COVID-19 epidemic. Russia’s inclusion in the OPEC+ group has hampered international attempts to manage the situation. This has made it harder to handle the significant inflationary effects of rising global fuel prices globally, particularly in developing nations.
Global fuel prices have risen exponentially in the last few months. The rise is hugely significant as it has seriously aggravated the global cost-of-living crisis. African economies have particularly been on the receiving end. The continent has suffered from disrupted supply chains and the slowdown in the global economic outlook. Thus, the rising energy costs complicate matters even further.
International Energy Agency highlights the global fuel situation.
- According to the International Energy Agency (IEA), the global oil demand will grow by 2.2 million barrels per day (mb/d) in 2023 to 101.8 mb/d. Resurgent Chinese consumption, jet fuel, and petrochemical feedstocks will play a significant role in this demand.
- Russia and Saudi Arabia’s decision to extend output cuts through year-end locks in a significant market deficit through 4Q23. So far, in 2023, OPEC+ has an output fall of 2 mb/d. Moreover, Higher Iranian flows have tempered the overall losses. In August, the non-OPEC+ oil supply rose by 1.9 mb/d. As such, the global fuel supply will increase by 1.5 mb/d in 2023. Brazil, Iran, and the US will lead the growth.
- Russia’s fuel export revenue rose by $1.8 billion to $17.1 billion in August as higher prices counterbalanced lower shipments. Contrastively, total Russian fuel exports fell by 150-kilo barrels per day (kb/d) in August to 7.2 mb/d, 570 kb/d in the same period in 2022. Shipments to India and China accounted for over half the volumes despite slumping to 3.9 mb/d from 4.7 mb/d in April and May.
- In August, refinery margins reached their highest level in eight months. This happened as refiners experienced difficulties keeping up with rising fuel demand, particularly for middle distillates. In light of unplanned disruptions, feedstock quality challenges, supply chain constraints, and depleted inventories, product defects and margins reached near-record levels. Global refinery flows are anticipated to increase by 1.7 mb/d to 82.4 mb/d in 2023 and by 1.2 mb/d to 83.6 mb/d in 2024.
- Globally observed oil stockpiles fell by 76.3 mb to a 13-month low in August, owing to a significant drop in oil on water. Non-OECD oil stockpiles declined by 20.8 mb. China accounted for the most crucial draw, while OECD inventories fell by 3.2 mb. In July, OECD industrial stockpiles increased by 26.7 mb to 2 814 mb. However, they remained 102.6 mb short of their five-year average.
- Throughout August, oil prices changed narrowly. North Sea Dated hangs around $85/bbl with price fluctuations near multi-year lows. Prices rose at the end of the month as fundamentals resurfaced. The price broke the $90/bbl for the first time in ten months as Saudi Arabia and Russia extended voluntary output curbs to the end of 2023.
Also Read: Nigeria Oil Output Falls By 30% In Four Years.
Rising fuel prices despite economic slowdown
The recent fuel increases are some of the sharpest rises in more than 20 years. And, as the IEA predicts, there are likely to be further fuel price rises on forecourts up and down across the globe in the coming months.
Over the last few months, Europe’s economic indicators have remained weak. China, the world’s biggest crude importer, has experienced a sharp economic slowdown. As such, global fuel demand oil demand should slow down, resulting in price falls.
However, global fuel prices have surged over the last three months despite a sluggish global economy. For instance, Brent crude has gone above $90 for the first time this year. Moreover, its US equivalent, West Texas Intermediate, has also posted a 10-month high.
OPEC’s role in rising global fuel prices
The 13-nation body controls up to 40 per cent of global fuel production and 80 per cent of all available crude oil reserves. And recently, since Russia invaded Ukraine, Russia, a non-OPEC member, has deepened its collaboration with the formation’s lynchpin Saudi Arabia. Consequently, this OPEC+ grouping has since controlled 50 per cent of global fuel production and 90 per cent of all crude oil reserves.
Last year, OPEC+ agreed to gradual fuel production cuts. These cuts will eventually amount to 3.66 mb/d, around 3.6 per cent of global fuel production. Originally in effect until 2023 end, the group agreed in June 2023 to extend the cuts to 2024.
In July 2023, OPEC+ cut another one mb/d from the global fuel markets, billed initially as a temporary move. Last week, already having extended this cut until the end of September, Saudi Arabia, pumping less than 13 per cent of global fuel production, announced that the million-barrel reduction would remain in place until the end of the year.
Russia, a Saudi equivalent in fuel production and already pivotal to the general OPEC+ supply cuts, also extended its restrictions. Russia announced last week that its daily 300,000-barrel export cut would remain until the end of the year.
The Moscow-Riyadh move intentionally raises global tensions, especially among the countries significantly critical of Russia’s invasion of Ukraine. Moreover, with the US election in November 2024, fuel prices have become highly politically delicate. Fuel prices and high inflation provide the Republicans the ammunition to attack the Biden-Harris administration.
OPEC+ will meet in November to decide on its fuel production policy for early 2024. As the race for the White House heats up, the group’s decision and the effect on the US and the global fuel prices and cost of living will hit the mainstream media headlines.
Also Read: Record-high fuel prices in Kenya amid economic woes
Price prospects amid inflation and changing geopolitical outlook
The global economy is reportedly still undersupplied by 1.5 million barrels a day. Futures markets predict an additional 5 per cent price increase by the end of the year. Although the global economic growth is still disappointing, the market may surge towards the significantly symbolic $100 per barrel barrier last crossed following Moscow’s invasion 19 months ago.
The global fuel market rebounded from the initial shock of the conflict and the introduction of Western sanctions. The fuel price fell each month from early to mid-2023 by a significant figure compared to the same period last year.
These diminishing “negative base effects” significantly caused the rapid decline in headline inflation in major economies in 2Q2023. Much lower energy prices contributed considerably to each month’s drop in inflation. As a result, central banks managed to predict that this devastating string of rate increases may shortly end when inflation drops.
The record-high global fuel prices are now driving inflation back up. These benign inflation-reducing factors’ base effects are waning and may soon be reversed. Consequently, central bankers’ promises that the peak in interest rates is now in sight may quickly start to ring hollow.
Moreover, fossil fuels remain essential for economic and political lives. This is despite the focus of public discourse on renewables and the larger green agenda. The global share of fossil fuel energy will remain high in the coming years. Even the most optimistic projections of the effectiveness of renewables and the deployment of solar and wind turbines, as well as new nuclear, could prove insignificant.
The world’s rising giants seek to confront the G7-led Western world. Thus, they could bank on the expanded BRICS+ grouping with Brazil, Russia, India, China, and South Africa at its core. In this case, crude oil will continue to be a potent political tool.
Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates joined BRICS last month. This will add more power to the non-Western countries seeking to hasten the overthrow of a global order that they see as becoming increasingly antiquated. Interestingly, the new BRICS+ group comprises six nations that collectively account for about as much global fuel as the other 20 top oil-producing nations.
Also Read: Oil price drop should nudge Africa towards clean energy.
