Why are fuel prices on the rise and will they come down?

Published

2 years ago

September 4, 2023

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It’s been a crazy few years for the cost of many services and essentials, with fuel prices among the bills enduring something of a roller-coaster ride.

Pump prices during the COVID pandemic sank as low as £1.07 a litre for petrol and £1.11 for diesel as demand fell off a cliff due to lockdowns.

As the economy reopened, costs rose sharply while Russia’s invasion of Ukraine saw pump prices for both fuels hit record levels nearer £2.

Today, prices are well below those peaks but, as RAC Fuel Watch data has shown, August saw unleaded rise by almost 7p a litre, with diesel up by 8p.

Average costs are back above £1.50 for both and the hikes are set to be reflected in the next set of inflation figures which will likely place pressure on PM Rishi Sunak’s pledge to halve the rate of inflation this year.

The single biggest factor behind fuel price shifts is the cost of oil.

At the heart of this, like in any market, is supply and demand – with some speculative trading thrown in for good measure.

While Western economies do not tolerate price fixing behaviour, it is at the heart of the oil market and there is no mechanism to stop it.

That is because prices are largely at the mercy of the so-called OPEC+ cartel – a group of 23 oil-producing nations that account for more than 80% of world crude reserves and more than 40% of global output.

The Saudi-led organisation, which includes Russia, sets production targets aimed at keeping prices nicely profitable, reacting to global shocks and demand shifts, as appropriate, to meet their shared goals.

UK fuel prices lag, generally by a few weeks, the cost of oil.

The recent performance for Brent crude would suggest more fuel price hikes are in the pipeline.

The contract for November delivery stood at $88 a barrel on Monday.

Last month saw a low of $84 and peak of $86 amid continuing production cuts by Saudi Arabia and other members of the wider OPEC+ alliance to support the market.

The latest spike is partly explained by expectations that the key OPEC+ players will, this week, extend their production cuts to October.

The cartel’s cuts reflect worries that a slowing global economy – largely a consequence of rising interest rates to tackle inflation – is a risk to demand and, therefore, prices.

The particular concern for members is the crisis facing China’s economy, threatening a return to the pandemic-era when supply was outstripping demand.

But there is every reason to believe that oil costs may be near their peak – barring any further shocks.

Analysts say effects from the peak US holiday driving season are likely to weigh on oil prices in the coming days now the summer is over.

A recent survey by the Reuters news agency, which is independent of OPEC+, also showed the first monthly rise in output by the cartel since February during August.

When it comes to fuel prices, motoring groups have also expressed hope that recent regulatory scrutiny on pump prices will continue to weigh.

The RAC said supermarkets had reduced fuel margins back to pre-pandemic levels since being rapped by the Competition and Markets Authority in July.

Its fuel spokesman, Simon Williams, said: “Wholesale costs for both petrol and diesel started to rise in late July on the back of oil hitting $85.

“While the barrel price has stayed at that level throughout August, retailers had no choice but to pass on their increased costs at the pumps.

“Fortunately for drivers though, they have clearly been influenced by the CMA’s investigation as, all of a sudden, margins are once again closer to their longer-term averages.

“It appears they used the wholesale price rise to subtly cover their tracks – after all, big reductions at the pumps soon after the CMA’s findings were announced would perhaps have been far too obvious a step.

“All we can hope is that this move by many big retailers back to fairer forecourt pricing remains when wholesale costs go down again. Only time will tell.”

The worrying reality though is that while regulation can, and has, had an impact, ultimately the power over the prices we pay at the pumps is in the hands of a unregulated cartel.

Business

Insurer Hiscox lines up chairman months after Bayesian sinking

Published

11 hours ago

April 7, 2025

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Hiscox, the London-listed insurer, is close to naming a new chairman nearly eight months after the drowning of Jonathan Bloomer on the luxury yacht of technology tycoon Mike Lynch.

Sky News has learnt that Hiscox has narrowed its search to candidates including Richard Berliand, who chairs the interdealer broker TP ICAP.

Insurance insiders said that Mr Berliand was among fewer than a handful of potential successors to Mr Bloomer.

The sinking of the Bayesian off the Sicilian coast last August claimed the lives of Mr Lynch and his daughter, along with five other passengers, including Mr Bloomer.

A former boss of Prudential, Mr Bloomer was a well-liked figure in the City.

He had chaired Hiscox for just a year when he died.

The identities of the other candidates being considered by the company were unclear on Monday.

Hiscox, which has a market capitalisation of just over £3.8bn, has seen its shares slip by about 12pc over the last year.

It was founded as a single underwriter at Lloyd’s in 1901.

A Hiscox spokesperson declined to comment.

Business

Asian stock markets tumble – with Hong Kong’s Hang Seng index suffering worst fall for 28 years

Published

15 hours ago

April 7, 2025

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Asian stock markets tumble - with Hong Kong's Hang Seng index suffering worst fall for 28 years

Asian stock markets have fallen dramatically amid escalating fears of a global trade war – as Donald Trump called his tariffs “medicine” and showed no sign of backing down.

Hong Kong’s Hang Seng index of shares closed down 13.2% – its biggest drop since 1997, while the Shanghai composite index lost 7.3% – the worst fall there since 2020.

Taiwan’s stock market was also hammered, losing nearly 10% on Monday, its biggest one-day drop on record.

Elsewhere, Japan’s Nikkei 225 lost 7.8%, while London’s FTSE 100 was down 4.85% by 9am.

Tariffs latest – FTSE falls after Asian markets tumble

US stock market futures signalled further losses were ahead when trading begins in America later.

At 4am EST, the S&P 500 futures was down 4.93%, the Dow Jones 4.32% and the Nasdaq 5.33%.

Markets are reacting to ongoing uncertainty over the impact of President Trump’s tariffs on goods imported to the US, which he announced last week.

Speaking on Air Force One on Sunday, Mr Trump said foreign governments would have to pay “a lot of money” to lift his tariffs.

“I don’t want anything to go down. But sometimes you have to take medicine to fix something,” he said.

The US president said world leaders were trying to convince him to lower further tariffs, which are due to take effect this week.

“I spoke to a lot of leaders, European, Asian, from all over the world,” Mr Trump told reporters.

“They’re dying to make a deal. And I said, we’re not going to have deficits with your country.

“We’re not going to do that because to me, a deficit is a loss. We’re going to have surpluses or, at worst, going to be breaking even.”

Mr Trump, who spent much of the weekend playing golf in Florida, posted on his Truth Social platform: “WE WILL WIN. HANG TOUGH, it won’t be easy.”

President Trump believes his policy will make the US richer, forcing companies to relocate more manufacturing to America and creating jobs.

However, his announcement has shocked stock markets, triggered retaliatory levies from China and sparked fears of a global trade war.

Reality hits that trade war no longer just a threat

China’s announcement of its tariff retaliation came late afternoon on Friday local time.

Most Asian markets closed shortly after – and markets in China, Hong Kong and Taiwan were closed for a public holiday – meaning the scale of the hit did not play out until today.

This morning we are getting a sense of the impact. Dramatic falls across all Asian markets clearly signal a realisation a global trade war is no longer just a threat, but a reality here to stay, and a global recession could yet follow.

Up until Friday, China’s response to Donald Trump’s tariffs had been perceived as restrained and designed to avoid escalation, the markets had reacted accordingly.

But that all changed last week when Mr Trump’s new 34% levy on all Chinese goods was matched by China with an identical tax. Both sit on top of previous tariffs levied, meaning many goods now face rates in excess of 50%.

These are numbers that make most trade between the world’s two biggest economies almost impossible and that will have a global impact.

China has clearly decided any forthcoming pain will have to be managed, and not being seen to be cowed and bullied by Mr Trump is being deemed more important.

But the scale of the retaliation will have further spooked the markets as it makes the prospect of negotiation and retreat increasingly unlikely.

Mr Trump added to the atmosphere of intransigence when he told the media on Sunday the trade deficit with China would need to be addressed before any deal could be done. The complete lack of concern from the White House over the weekend will also not have helped.

While smaller economies like Japan, South Korea, Cambodia and Vietnam are all lining up to attempt to negotiate, there are a lot of nations in that queue.

There is a sense none of this will be easily rectified.

US customs agents began collecting Mr Trump’s baseline 10% tariff on Saturday.

Higher “reciprocal” tariffs of between 11% and 50% – depending on the country – are due to kick in on Wednesday.

Investors and world leaders are unsure whether the US tariffs are here to stay or a negotiating tactic to win concessions from other countries.

Richard Flax, chief investment officer at wealth manager Moneyfarm, said: “I guess there was some hope over the weekend that maybe we would see this as part of the start of a negotiation.

“But the messages that we’ve so far seen suggest that the President Trump is comfortable with the market reaction and that he’s going to continue on this course.

Goldman Sachs has raised the odds of a US recession to 45%, joining other investment banks that have also revised their forecasts.

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In the UK, Sir Keir Starmer has promised “bold changes” and said he would relax rules around electric vehicles as British carmakers deal with a new 25% US tariff on vehicles.

The prime minister said “global trade is being transformed” by President Trump’s actions.

KPMG has warned tariffs on UK exports could see GDP growth fall to 0.8% in 2025 and 2026.

The accountancy firm said higher tariffs on specific categories, such as cars, aluminium and steel, would more than offset the exemption on pharmaceutical exports, leaving the effective tariff rate around 12%.

Yael Selfin, chief economist at KPMG UK, said: “Given the economic impact that tariffs would cause, there is a strong incentive to seek a negotiated settlement that diminishes the need for tariffs.

“The UK automotive manufacturing sector is particularly exposed given the complex supply chains of some producers.”

Business

Trump’s tariffs: A negotiating tactic or the start of an ‘economic nuclear winter’?

Published

18 hours ago

April 7, 2025

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Trump's tariffs: A negotiating tactic or the start of an 'economic nuclear winter'?

Traders called this morning a complete bloodbath as the UK’s FTSE 100 joined world indexes in turning red as uncertainty over Donald Trump’s tariffs continued to batter stock markets.

Across Asia and Europe, hundreds of billions have been wiped off companies’ values, particularly in banking and manufacturing.

The cause is not just the imposition of those tariffs (the largest the US has inflicted since the 1930s) and the very obvious drag this will have on global trade and growth, but also the uncertainty of ‘what next?’.

Trump tariffs latest: Musk shares video about ‘essential’ free market

Investors cannot work out if the Trump administration is genuinely wedded to tariffs on this scale, on the proviso that they will help re-shore companies and millions of jobs to the United States.

They don’t know if they are permanent or merely part of a negotiating tactic to address trade imbalances, and for America to use its economic heft to strike better deals.

If Mr Trump is open to deals (the first test comes later in a meeting with the Israeli prime minister), markets will calm, even if the midst of uncertainty hasn’t fully cleared.

However, if this is a genuine rewiring of global trade and the end of globalisation as we know it, markets and economies will continue to get battered.

As one Trump supporter, billionaire Bill Ackman – who opposes the tariffs – put it, President Trump has launched a “global economic war against the whole world” that will usher in an “economic nuclear winter.”

It’s time for all of us to buckle up.