Oil Prices Increased Last Week, But Will It Affect Fuel Prices in Croatia?

In global markets, oil prices rose last week for the second consecutive week, albeit slightly, as the further spread of the coronavirus worldwide could slow the recovery of the global economy, and thus the demand for oil, more than expected. The price of a barrel on the London market rose by 0.9 percent, to $44.8, while on the American market it increased by 1.9 percent, to $42.01.

The rise in oil prices was supported by data from the U.S. government regarding the decline in crude oil, gasoline, and distillate inventories for the third consecutive week. Prices were bolstered by a reduced estimate from the U.S. government regarding oil production this year. A decline in production in the U.S. is now expected to be 990,000 barrels per day, down to 11.26 million barrels per day, while in July it was estimated that the decline would be 600,000 barrels.

Whether and how much the rise in the price of black gold in global markets will affect the prices of oil derivatives in Croatia remains to be seen. Although the price of a barrel of crude oil rose last week, it was an increase of only 0.9 percent. 

Meanwhile, OPEC and its allies increased production in August. According to the agreement, their production was reduced by 9.7 million barrels per day or about 10 percent of total global supply from May to July, and from August to the end of the year, the reduction will be around 7.7 million barrels per day. This was agreed upon due to the expected recovery in demand, and the OPEC+ group will hold a virtual meeting next Wednesday to analyze the market situation.

Thus, oil prices continue to recover after plunging to their lowest levels in the last 20 years due to the coronavirus crisis in April. This is thanks to massive fiscal and monetary stimulus measures in the largest global economies, which have spurred the recovery of economic activities and thus the demand for oil.

However, investors are now somewhat concerned about the delay in reaching an agreement on a new fiscal stimulus package for the U.S. economy, valued between $1 trillion and $1.5 trillion. Hopes for reaching an agreement are fading as there are no new negotiations scheduled between the White House and the Democrats in Congress regarding this program. Additionally, the further rise in the number of new COVID-19 infections limits the rise in oil prices.

"In general, the question is whether the new spread of the coronavirus will continue to affect the recovery of demand for gasoline and diesel," says Andy Lipow from Lipow Oil Associates.

Last week, two reputable institutions that publish forecasts – the International Energy Agency (IEA) and OPEC – reduced their expectations for oil demand growth this year. The IEA lowered its estimate of this year’s oil demand by 140,000 barrels per day, to 91.9 million barrels per day, citing reduced air traffic due to the coronavirus pandemic. OPEC, on the other hand, revised its forecast for this year’s decline in oil demand upwards to 9.06 million barrels per day, while a month earlier it expected a decline in daily demand of 8.95 million barrels.

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