The price of oil fell below the $100 mark ahead of the OPEC+ meeting today, with benchmark Brent Crude dipping to $99 per barrel.
The market currently expects producers to keep a steady output, with little to no change in production as supply fears persist on the back of the Russian war in Ukraine.
“There are jitters flowing through the oil market today, ahead of an OPEC+ meeting which is expected to bear little fruit when it comes to changing current output mandates,” said Hargreaves Lansdown lead equity analyst Sophie Lund-Yates.
“This feeds into anxieties about constrained supply which consumers and wholesalers are very well-versed in at this point.”
However, analysts also noted an increase in demand fears, following weak Chinese economic data including a mere 0.4% growth in Q2 and a manufacturing purchasing managers index of 49.0 compared to the expected 50.4 in July.
The current market volatility is expected to continue into the weeks ahead, but the falling oil prices might give consumers reason for relief after several months of skyrocketing prices.
“The interesting flipside is that anxieties about a petering of demand seem to be winning in the battle of sentiment,” said Lund-Yates.
“Very real questions about the health of the global economy mean demand for oil and gas could be in for a contraction that’s so sharp, the supply concerns are void.”
“Continued volatility should be expected while these dual trains of thought continue, and consumers will welcome the reversal in prices to around $100 per barrel, against prices of around $124 as recently as March.”
Petrol prices remain high
The issue remains that these lower prices have yet to make their way onto petrol tills, with UK supermarkets under scrutiny for failing to drop their prices by even half the level wholesale prices have fallen.
“The UK’s major supermarkets have been accused of failing to pass falling wholesale energy prices onto customers, stalling the speed at which people can benefit from the tempering of the oil price,” said Lund-Yates.
“Tesco, Asda, Morrisons and Sainsbury’s have been accused of dropping their petrol prices by less than half the amount that wholesale prices have declined.”
“As the cost-of-living crisis continues to clamp down on people’s incomes, this sort of headline is something these companies don’t need.”
A possible explanation for the failure to pass along lowered prices has been suggested that supermarkets are attempting to make up for the shortfall in demand when petrol prices plummeted over the Covid-19 pandemic.
“At a business level, supermarkets were hampered during the pandemic when petrol prices famously dropped to under one pound, so these groups are arguably making up for these previous shortcomings,” said Lund-Yates.
