Lack of global demand
Why the prices at the pump are currently so low
by Jannik Tillar
06/24/2023, 5:28 p.m
A year after the petrol crisis in the summer of 2022, which prompted the federal government to introduce a petrol price brake, prices at the pumps seem to be recovering. In addition to too much supply, weak demand also plays a role.
Those who go on summer vacation by car should be happy these days. In line with the start of the holiday season, diesel prices have fallen to their lowest level since December 2021, while petrol prices have remained constant for six months. In view of the extreme price peaks in the past year, this is also good news for motorists.
The cheapest liter of Super E10 cost 1.59 euros in Bochum on Wednesday, and the cheapest liter of diesel was only 1.43 euros. According to the comparison portal Clever-Tanken, drivers had to pay an average of 1.796 euros for a liter of Super E10 on Tuesday, and 1.608 euros for diesel. The price difference between the two types of fuel remains stable at 18.8 cents, but is below the difference of around 20 cents per liter by which diesel is taxed less than petrol. Nevertheless: in mid-February, Super E10 and diesel cost about the same.
The development is surprising for many reasons, but it is mainly due to the lack of global demand. Even the extensive funding cuts in some OPEC countries do not help. At the beginning of June, for example, Saudi Arabia unilaterally announced that it would produce around one million barrels a day less oil in July. The country depends on an oil price of at least $80 a barrel to fund its expensive infrastructure projects. However, numerous global risks clouded the economic outlook and caused the price of oil to collapse by around 40 percent to around 73 dollars within a year.
It was only in April that some countries, including Saudi Arabia, extended the cuts to the surprise of many experts. From January 2024, global output is expected to fall again to 40.5 million barrels per day (b/t). This corresponds to a minus of 1.4 million b/t compared to today. In this context, the already ambitious funding targets of many African countries will be adjusted downwards.
Russia is opposed
The problem lies primarily with OPEC+ ally Russia, which has so far refused to adjust its production targets downwards. The country currently produces around nine million barrels of crude oil every day. Only Saudi Arabia and the USA produce even more. However, the USA is not dependent on production cuts, Saudi Arabia is already making cuts and many other OPEC countries are not achieving their production targets anyway due to years of underinvestment. In other words: Even if Russia will probably cut production from 2024. So far, the country has more or less directly ensured that the price of oil in the EU remains low – even though the EU has sanctioned imports of Russian oil.
In addition to the excessive supply, weak demand also plays a role. Above all, the weak economy in the USA and China plays a role here. While the United States is primarily suffering from the high interest rates of the US Federal Reserve, the recovery in China after the corona opening is not gaining momentum. The two countries are among the largest energy consumers in the world.
The recent price reductions can also be explained by the somewhat stronger US dollar. Since crude oil is mainly traded in the American currency, exchange rate effects play a major role in price formation. When the dollar rises, demand from countries with other national currencies often falls.