Why are petrol and diesel suddenly cheap again?

Frankfurt am Main. Fuel prices are only going in one direction at the moment: down. Oddly enough, this is mainly related to the planned generous price ceiling for Russian oil. Speculation about a global recession and data about the spread of the Covid pandemic in China have a reinforcing effect.

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On Thursday afternoon, diesel was available at many gas stations in the Rhine-Main area for less than €1.80 per litre. There was a similar trend in a number of other cities. Super gasoline also became significantly cheaper and in many cases fell below the 1.70 euro mark on Thursday. These are the prices as they were before the start of the Ukrainian war. The discounts have been visible for several weeks and have increased significantly recently. According to data from consumer portal Clever Tanken, the average national price for auto-ignition fuel was €1.97 and €1.86 for E10 as of Thursday last week – a rapid reduction last seen during the first lockdowns caused by the coronavirus.

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Falling prices in parallel with international oil markets

“The drop in Brent crude oil prices in recent days is definitely a driving factor for the current low fuel prices,” Clever-Tanken boss Steffen Bock told the editorial network Germany (RND). The way down is actually currently taking place in parallel, but with a delay of two to three days compared to prices on international oil markets. The price per barrel (159 litres) of the benchmark Brent variety fell below $85 on Thursday for the first time since January.

Traders and analysts blamed a planned price cap on Russian oil, which is transported by ship. The EU wants to stop these imports in the near future. At the same time, the G7 countries and the EU want to set a maximum. Experts predict that this limit should be between 65 and 70 dollars per barrel. The range is higher than expected, which would reduce the risk of global supply shortages, Commonwealth Bank’s Vivek Dhar writes in an analysis. He and his colleagues had previously forecast the average price for the current quarter to be $95 a barrel. Dhar now sees “downside risks” in this.

Pendulum experiment: Can Annika completely do without her car?

Unpleasant surprises at the petrol pump are part of everyday life in the energy crisis. This is especially felt by commuters who drive a car every day. Annika Paetow, an intern at “Kieler Nachrichten”, therefore tries to do without a car on her way to work. It is not an easy task.

Anticipation of a global recession

The reason: according to the consensus estimates of industry experts, Russian oil companies are already selling to refiners in China and India for significantly less than $65. However, the so-called ceiling is to be enforced by the fact that compulsory insurance of oil tankers by Western insurance companies, which are mainly based in London, is granted only if the cargo is sold below the maximum price.

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However, $65 to $70 per barrel is anything but set in stone. Reuters news agency reported that diplomats said EU energy ministers could reach an agreement at their meeting on Thursday and Friday. However, at the same time, it turned out that $65 is too high for Poland because it has no effect. Greece, on the other hand, does not want to go below 70 dollars: Greek shipping companies play a key role in the transportation of Russian oil.

However, for Hans van Cleef, an energy expert at Dutch bank ABN Amro, it is clear that the cap “will not have a major impact on overall supply”. Which in turn means that other factors play a bigger role in price ups and downs. For example, the expectation of a global recession, which has been talked about for weeks. Now there should be new forecasts from the American central bank, according to which the probability of the economy shrinking is 50 percent. The central bank itself probably contributed to this with its sharp increase in key interest rates.

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However, not everything is clear for motorists

And then the news that there is a new high number of people infected with Covid in China. To which the government responds with extremely strict restrictions on the population. Over the course of the pandemic, which is now three years old, it has been repeatedly shown that lockdowns have sharply reduced demand for fuel, and China is believed to be the world’s largest oil importer. In addition, there could be two-way effects: blocking could lead to bottlenecks in supply chains, which would also reduce production in European and North American industries.

This mixed situation created a so-called contango situation on the oil markets. Prices for deliveries in the New Year are higher than in December. This means that traders assume that there is a very large supply at the moment, but that could change again soon. Bock also points out: “We are currently experiencing a recovery phase. But you can’t give motorists the all-clear.” Because the oil embargo against Russia will come into effect on December 5. “Since then, I expect prices to rise again. In addition, the Christmas season will drive fuel prices up.”

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