Oil Prices Rise for Five Consecutive Weeks, How Much Will Fuel Prices Increase in Croatia?

Oil prices in global markets rose again last week, marking the fifth consecutive week of increases, as further production cuts are expected, while demand for oil is anticipated to rise as many countries around the world resume economic activities, given the slowdown in the spread of the coronavirus. In the London market, the price of a barrel for August delivery rose by 7.7 percent to $37.84 last week, while in the American market, the price of a barrel increased by 6.7 percent to $35.49.

In the last five weeks, oil prices have significantly increased as many countries ease the restrictive measures imposed to curb the spread of the coronavirus, leading to a revival of economic activity and stronger demand for oil.

Last week, following four consecutive weeks of rising barrel prices, fuel prices in Croatia also increased. Given that demand for oil derivatives has risen in Europe and Croatia, there is a likelihood that the upward price trend in Croatia will continue. This increase in barrel prices will certainly reflect on prices in Croatia; the only question is when. However, to draw such a conclusion (continuation of price increases), one must wait for the official price change on Tuesday.  

After a sharp decline in March and April due to the paralysis of economic activities caused by the coronavirus crisis, in May, the price of a barrel in the American market jumped by 88 percent, marking its record monthly increase, while in the London market, the price of a barrel rose by 40 percent, the highest since March 1999.

Demand for fuel remains weak, despite the lifting of travel restrictions imposed in many countries to curb the coronavirus pandemic, analysts say. However, production is decreasing, as indicated by the months-long decline in the number of active drilling rigs in the U.S. 

On Friday, Baker Hughes announced that the number of these rigs fell for the 11th consecutive week, down by 17 to just 301, the lowest level since 1940, when these data began to be tracked. Since the beginning of May, an agreement has been in place between the Organization of the Petroleum Exporting Countries (OPEC) and independent producers led by Russia for the largest production cut in history, amounting to 9.7 million barrels per day. 

In the second week of June, a regular meeting of OPEC and its allies is expected to be held. Saudi Arabia and some OPEC members are considering extending the production cut agreement into the second half of the year, but have not yet received support from Russia. Last week, investor focus was also on tensions between the U.S. and China, after the Chinese parliament adopted a national security law in Hong Kong on Thursday in response to last year’s large protests in the former British colony.

As a result, the U.S. will begin the process of revoking the trade exemptions that Hong Kong enjoyed, President Donald Trump said on Friday. Hong Kong is not autonomous enough to justify the special status granted to the territory since it was handed back to China, Trump stated.

Additionally, he and his administration frequently criticize China for not doing enough to curb the spread of the virus, while China has indicated it will not shy away from escalating tensions. Therefore, investors fear that worsening relations between the U.S. and China could further disrupt global business activities, which are already under pressure from the coronavirus crisis.

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