Oil Prices Rise by 2.5 Percent, Will Fuel Prices in Croatia Follow?

Oil prices in global markets rose by more than 2 percent last week, while their further increase is limited by the ongoing spread of the coronavirus worldwide, which could slow down the recovery of the global economy and thus the demand for oil. In the London market, the price of a barrel rose by 2.5 percent last week to $44.40, while in the American market, the barrel increased by 2.4 percent to $41.22.

Support for prices was provided almost the entire week by investors’ hopes for new stimulus measures in the U.S., which would accelerate the recovery of the world’s largest economy and the largest consumer of oil. However, as Democratic and Republican representatives in Congress failed to agree on new stimulus measures worth about $1 trillion, oil prices fell by nearly 2 percent on Friday, thus reducing last week’s gains.

That new stimulus measures are necessary is shown by most recent data, according to which the economy is not exactly on a strong upswing. For example, it was announced on Friday that in July, the number of employed in the U.S. increased by 1.76 million, which is, admittedly, slightly more than expected, but significantly less compared to 4.8 million a month earlier.

Other data also do not indicate a rapid recovery of the U.S. economy, and investors are concerned about the relentless rise in the number of infected and deceased from the coronavirus in the U.S. and worldwide. Further spread of the coronavirus could lead to new restrictive measures, renewed lockdowns of economies, and weaker demand for oil than expected.

The pressure on oil prices is also a result of the announced increase in oil production starting in early August. The Organization of the Petroleum Exporting Countries (OPEC) and its allies recently agreed to increase production by a total of 1.5 million barrels per day starting in August, after sharply reducing it at the beginning of the coronavirus crisis.

The Weakness of the Dollar Supports Oil Prices

On the other hand, the weakening of the dollar has supported oil prices. The dollar index, which shows the value of the U.S. dollar against six other major world currencies, fell last week for the seventh consecutive time, marking its longest negative streak in the last ten years.

As a result, the value of the dollar against a basket of currencies is at its lowest levels in over two years. The weakening of the dollar encourages the purchase of goods priced in dollars, such as oil, as they become cheaper for holders of other currencies.

After falling more than 30 percent at the end of March and early April due to the coronavirus crisis and diving to the lowest levels in about 20 years, oil prices have recovered in recent months, thanks to massive fiscal and monetary stimulus measures in the largest world economies, which have spurred the recovery of economic activities and thus the demand for oil.

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