The price of a barrel has fallen by one percent, will this affect fuel prices in Croatia?

In global markets, oil prices stagnated last week as traders are concerned about weak demand due to the slow recovery of economies, while on the other hand, there is a possible increase in supply. The price of a barrel on the London market fell by about 1 percent last week, to $44.35, while on the American market, the barrel increased by almost 1 percent, to $42.34.

The stagnation in prices is a result of the further spread of the coronavirus worldwide, which has led some countries to reintroduce restrictive measures, as well as the weakness of the largest global economies, leading to a decline in demand.

How this will affect the prices of oil derivatives in Croatia remains to be seen. Namely, in the last two weeks, the price of a liter of eurosuper 95 has recorded an increase, while eurodiesel and autogas have seen a price decrease during that period. 

On Friday, a report from the analytical company Markit indicated a slowdown in the economic recovery of the Eurozone in August, due to weakening activity in the service sector influenced by the further rise in the number of coronavirus infections. Markit’s PMI index for purchasing managers in the private sector fell by 3.3 points in August compared to July, to 51.9 points.

The fact that the recovery will not proceed smoothly is also indicated by the decline in Indian crude oil imports in July, to the lowest level since March 2010, due to the reintroduction of lockdown measures to stop the spread of the coronavirus. The situation in the American economy is not impressive either, as shown by the minutes from a recent meeting of the leaders of the American central bank.

The coronavirus pandemic „will significantly impact economic activities, employment, and inflation in the short term, and poses a significant risk to economic prospects in the medium term”, the minutes from the meeting state, where the Fed left interest rates unchanged and indicated that the economy still needs monetary support.

Fed leaders believe that the economy still requires fiscal stimulus, given that employment growth has recently slowed down after a strong recovery in June and July.

"Demand is likely to approach pre-pandemic levels in 2021, and in the remainder of 2020, a muted struggle will ensue, accompanied by attempts to mitigate the effects of the second wave of infections," experts from the consulting company Rystad Energy state.

The weakness of demand is also indicated by data showing that in the U.S., fuel demand has fallen by more than two million barrels per day, to 17.2 million barrels. Total demand in the last four weeks was 14 percent lower than in the same period last year, and the summer travel season is coming to an end, which means it will further weaken in the upcoming period.

Meanwhile, OPEC and its allies increased production in August. According to the agreement, from May to July, their production was reduced by 9.7 million barrels per day or about 10 percent of total global supply, and from August to the end of the year, the reduction will be around 7.7 million barrels per day. OPEC and partners are also ensuring that those who previously produced more than agreed are now producing less.

OPEC’s report also showed that demand for oil this year will fall by 9.1 million barrels per day, and if the number of coronavirus infections continues to rise for an extended period in the second half of the year, by as much as 11.2 million barrels per day.

In April, due to the coronavirus crisis, oil prices plummeted to their lowest levels in the last 20 years. However, they later recovered a large part of those losses, thanks to massive fiscal and monetary stimulus measures in the largest global economies, which spurred the recovery of economic activities and thus demand for oil. However, in recent weeks, oil prices have not fluctuated significantly as the recovery of the global economy has slowed down. 

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