A Look Back

The oil and diesel markets saw significant falls last week amid fears of recessions in the Western economies and further interest rate hikes. Brent crude fell 9.8% last week after opening at $94/barrel with diesel falling over 10%. US employment data was stronger than anticipated last week, making further interest rate hikes look likely as the US continues to battle with inflation. An additional increase in interest is likely to dent demand for oil causing last week’s fall in prices.
 
Nevertheless, British consumers were unable to take full advantage of these market moves due to the increasing strength of the US Dollar. At the time of writing Sterling was valued at $1.217 (down 8% since July) making oil and fuel purchases more expensive for British consumers. If the US do decide to increase interest rates this month, the value of the Dollar looks set to increase further.
 
Looking Ahead

The main focus of oil and fuel market stakeholders this week will be the reaction of Israel following this weekend’s events in the Middle East. Brent crude jumped 4% following the attacks and any escalations will likely push this further. Israel do not produce oil themselves but unrest in the Middle East is likely to shock markets and, given that Iran are in support of the Hamas attacks, there is increasing uncertainty around the security of the Strait of Hormuz – which is a supply route for 20% of global oil.
 
Increasing unrest within the Middle East as we approach the winter heating season is likely to see significant price increases for consumers. On average, demand for power in the UK is 36% higher in the winter than in summer and thus British consumers can expect to see higher prices as we move into the winter months.
 
Elsewhere, Germany is set to release output data on Monday which will provide an insight into the recovery of the EU’s largest economy and US CPI data is due to be released on Thursday.