Oil prices rose this week as resilient demand resulted in a larger-than-expected fall in U.S. oil stocks, offsetting fears of higher U.S. interest rates dampening consumer spending power.
“The crude demand outlook is starting to look better as we enter peak summer travel in the U.S., and as the Saudis were able to raise prices to Europe and Asia,” said Edward Moya, an analyst at OANDA. U.S. crude stocks fell more than expected on strong refining demand, while gasoline inventories posted a large draw after an increase in driving last week, the Energy Information Administration said on Thursday.
That comes as top oil exporters Saudi Arabia and Russia announced a fresh round of output cuts for August. The total cuts now stand at more than five million barrels per day (bpd), equating to 5% of global oil output.
However, oil price gains were capped by strengthening expectations that the U.S. central bank is likely to raise interest rates at its July 25-26 meeting after holding rates steady at 5%-5.25% in June.
The number of Americans filing new claims for unemployment benefits increased moderately last week, while private payrolls surged in June, data showed on Thursday, raising the likelihood of a Federal Reserve rate hike this month.
OPEC will likely maintain an upbeat view on oil demand growth for next year when it publishes its first outlook later this month, predicting a slowdown from this year but still an above-average increase, sources close to OPEC said.
Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand. Investors will look for cues on rate paths from U.S. and China inflation data next week.
“Oil has found a floor this week and it looks like it could head higher as long as global recession fears don’t run wild,” Moya said.
Meanwhile, back at home, an in depth investigation by the Competition and Markets Authority is likely to force supermarkets and other fuel retailers to publish live prices under a new scheme aimed at stopping retailers from overcharging consumers, the government says.
It comes after Britons were found to have paid an extra 6p per litre for fuel at supermarkets last year as weak competition let them charge more. Under the scheme drivers will be able to compare up-to-date prices online so they can find the cheapest option.
Driving groups say the idea, which is used elsewhere in Europe, is overdue. Energy Security Secretary Grant Shapps said it would change the law to force retailers to share this information. A new “fuel monitor” oversight body will also be set up to scrutinise prices on an ongoing basis.
“We’ll shine a light on rip-off retailers to drive down prices and make sure they’re held to account by putting into law new powers to increase transparency,” Mr Shapps said.
Petrol and diesel prices spiked to record highs in the immediate aftermath of Russia’s invasion of Ukraine but have dropped significantly since then.
The Competition and Markets Authority (CMA) has been investigating the UK fuel market following concerns that falling wholesale prices are not being passed on to consumers. According to the watchdog, supermarkets were usually the cheapest place for fuel but competition was “not working as well as it should be”.
CMA boss Sarah Cardell told the BBC: “We’ve seen retail margins increase over the last few years. And that means that motorists are paying more at the pump than they would be if competition was working really well.”
The RAC’s spokesman, Simon Williams, said the extra costs for consumers were “nothing short of astounding in a cost-of-living crisis and confirms what we’ve been saying for many years that supermarkets haven’t been treating drivers fairly at the pumps”.
Asda – which was separately fined £60,000 by the CMA for failing to provide information in a timely manner to the investigation – said it was still the cheapest traditional supermarket for fuel.
Morrisons said its pricing was “extremely competitive”, while Tesco said it was committed to providing “great value”.
All of them have welcomed the idea of a price transparency scheme, of which a successful example is already in place and said to be lowering prices in Northern Ireland.
The government said that under its new initiative, drivers would be able to access live, station-by-station fuel prices on their phones or satnavs.
At present, retailers only provide price information at petrol stations themselves, making it hard to compare rates, although some websites try to collate this data.
As we head into the second week of July fuel card users can expect an increase in the region of 0.8 pence per litre.