Oil prices have ended the week roughly in line with where they started. Earlier in the week prices surged by up to 4% following a drone attack on the Caspian Pipeline Consortium, which connects Russian and Kazakhstani oil fields to export facilities on the Black Sea. Crude supply from the region dropped more than 30% following the attack. Disruption to the Russian hydrocarbons industry was intensified later in the week with a drone attack on the 150,000 barrels per day Syzran refinery, which led to a suspension of operations.
Following the ramp-up earlier in the week, oil prices fell away on Friday as news emerged of productive negotiations between Russia and the US on a potential ceasefire agreement in Ukraine, despite Ukrainian leaders being left out of negotiations.
In Australia we saw the first interest rate reduction since November 2020, with the Reserve Bank of Australia announcing a 25 basis-points cut on Tuesday to 4.10%. With better-than-expected employment data released on Thursday by the ABS, the Australian dollar has strengthened over 1% this week to a two-month high, which will reduce the effective cost at the bowser for Australian businesses.
Looking to the week ahead, we expect commercial fuel prices to be roughly stable this week, with the potential for small declines if the Australian dollar retains its strength.
- International wholesale prices: Diesel rose to US$93 per barrel, up 0.9% from last Friday. Jet Fuel increased by 0.6%, whereas Gasoline held steady.
- Australian dollar: The AUD strengthened by 1.2% this week, closing at US$0.6397.
- Shipping costs: Fuel freight costs to Australia increased by 5.2%, with rates at approximately 2.2x the ‘standard’ rates.??
International industry news:
- Oil price: Brent crude closed the week at US$74 per barrel, down 0.6%.
- Russian supply: Ukraine launched two separate drone attacks this week on Russian energy infrastructure. A compressor station at the Caspian Pipeline Consortium pipeline was damaged, reducing oil throughput by an estimated 30% to 40% according to Russian sources. The pipeline normally carries c.1.5 million barrels per day from Russian and Kazakhstani oil fields, primarily for export to the European market from the Russian port of Novorossiysk. Strangely, Kazakhstan unofficially reported record production levels of oil and gas condensate of 2.12 million barrels per day at the same time. Ukraine also damaged the Syzran oil refinery in the Samara region deep inside Russian territory, leading Russian officials to extend the existing gasoline export ban for another six months.
- Ukraine-Russia war: The US has pushed ahead with bilateral discussions with Russia, aiming to bring an end to the Ukraine-Russia war. Oil prices softened following the meeting between US and Russian officials in Saudi Arabia, as any peace deal is likely to release more Russian supply to the global market. Following the meeting, US officials stated that any agreement must be acceptable to all relevant stakeholders. However, Ukrainian officials have been critical that these talks are occurring without their involvement. Further heightening diplomatic tensions, the US indicated on Friday that it expects Ukraine to negotiate US access to the vast reserves of Ukrainian critical minerals, such as lithium and titanium, in exchange for the support that the US has already provided in the last three years of the war.
- Australian dollar: The Australian dollar strengthened to a two-month high following the release of strong employment data this week. The Australian labour market added 44,000 workers, which was more than double the market consensus estimate. Despite the increased worker numbers, the unemployment rate increased to 4.1% as expected, up from 4.0% in December. The rise in the Australian dollar was amplified by recent US employment data showing that jobless claims there were trending higher than expected.
As always, please contact your IOR account manager should you have any questions about the implications for your business. If you're not a customer yet, contact us at 1300 457 467 or [email protected] to find out what we can do to support your business.
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