Experts predict that high oil and petrol prices are inevitable, but the duration of this price surge remains uncertain. As markets open, oil prices are anticipated to increase by approximately USD 5 per barrel, potentially reaching USD 80 for the first time since January 2024. Prior to this increase, crude prices had mostly fluctuated between USD 60 and USD 75 per barrel since August 2023, aiding in reducing petrol prices to under USD 1.22 per litre, offering some relief amidst ongoing inflation.
The recent spike in oil prices, approximately 10% since June’s unexpected military tensions, raises questions about sustainability. Market fluctuations followed US President Donald Trump’s announcement regarding potential military actions against Iran, indicating the volatile nature of oil prices. Joe Brusuelas, chief economist at RSM, cautions against assuming that rising prices will remain constant, suggesting that geopolitical developments significantly affect market stability.
A crucial factor influencing oil prices is the status of the Strait of Hormuz, a key oil transit route through which 20% of global crude oil passes. Iran’s government has hinted at various responses to US provocations, with some officials advocating for the closure of this critical waterway. This action could potentially incite military retaliation from the US and its allies.
Bob McNally of Rapidan Energy Group emphasised that any blockade of the Strait could lead to broader military engagements, as Iran might also target crucial oil infrastructure in the region. In a broader context, US Secretary of State Marco Rubio urged China to intervene and discourage Iran from closing off the Strait, emphasising the economic repercussions this would entail, especially for nations reliant on Persian Gulf oil.
Should the Strait be shut down, predictions suggest oil could skyrocket to USD 100 per barrel, with petrol prices increasing by around 29 cents per litre. The market’s recent behaviour indicates oil pricing may reflect immediate geopolitical tensions, with potential price hikes evident at fuel stations as supply disruptions are realised. Patrick De Haan from GasBuddy notes that price changes at the pump could occur rapidly, potentially within a day or so.
Moreover, current American trade policies amidst the Israel-Iran conflict suggest inflation rates may trend upwards over the coming months, foreseeing a potential economic storm following a period of relative calm. Several economists assert that recent low inflation might merely be a temporary respite before a resurgence as tariffs impact pricing structures.
In conclusion, while oil prices are set to rise, ongoing geopolitical tensions and market reactions create an unpredictable landscape, leaving consumers and analysts vigilant in monitoring developments affecting fossil fuel prices in the near future.