Brent crude oil prices fell more than 4% to approximately US$82 a barrel on Monday following news that the United States and Iran reached a memorandum of understanding. This price drop follows a period earlier in the Middle East conflict when Brent crude exceeded US$120 a barrel.
While the drop represents a significant shift, analysts suggest prices may not return to the levels seen at the start of the year. Collins noted that crude oil is unlikely to drop back to the US$60 per barrel seen in early months.
How are local fuel prices changing?
Fuel prices are already showing signs of relief. According to the fuel tracking app Gaspy, the average price for unleaded 91 is currently $3.15 a litre, which is a decrease from the $3.48 average seen in mid-April.
Diesel prices have also seen a decline, falling from an average of $3.89 in April to $2.89. However, these rates remain higher than the $2.49 per litre recorded for unleaded 91 at the onset of the conflict in early March.
Why might oil prices settle at a lower level?
Collins predicts that crude oil could settle around US$80 a barrel. If this trend continues, he suggests unleaded 91 octane might drop to about $2.80 and diesel could potentially fall to $2.10 or even under $2 on a good day.
The recent volatility highlights that the market has faced a transportation problem rather than an oil production problem. If the Strait of Hormuz opens, hundreds of tankers could head toward refineries, potentially increasing the global supply.
What factors could impact future oil supply?
Several variables may prevent prices from dropping further. Collins noted that many nations will eventually need to replenish their strategic reserves, which could drive upward demand depending on the speed of replenishment.
What are the risks for oil transportation?
Tankers resuming transit through the Strait of Hormuz face a strategic trade-off. While the route offers a shorter distance to refineries, Collins noted that insurance costs for these vessels will likely be higher.
If shipping companies decide to avoid the strait to mitigate risk, they may turn to other oil producers. In such a scenario, shipping costs and transit times could increase.
Frequently Asked Questions
What caused the recent drop in Brent crude prices?
The price fell following news that the US and Iran reached a memorandum of understanding on Monday.
Will oil prices return to US$60 a barrel?
No, Collins stated that prices are not expected to return to the US$60 per barrel levels seen at the beginning of the year.
How has the price of diesel changed since April?
Diesel has fallen from an average of $3.89 in April to $2.89.
How might changes in shipping insurance affect global fuel costs?
