Fuel prices in Poland have decreased by 0.20-0.30 PLN. Unfortunately, this trend has already stopped and it’s quite unlikely that it will come back quickly. This is mainly a result of an increase in demand and a limited supply – said Marcin Lipka, Cinkciarz.pl analyst.
One month ago, the cost of Brent oil was at the level of approximately 57 dollars per barrel. However, the Brent oil price decreased by 10% in the second half of March. Moreover, Brent prices expressed in zloty decreased by approximately 15% due to the wear-off of the dollar, as well as to the strengthening of the zloty.
Tendencies on fuel were similar. In the ARA market (Amsterdam – Rotterdam – Antwerp), one litre of unleaded fuel went down from approximately 1.8 PLN to 1.5 PLN. Moreover, diesel fuel went down from 1.75 PLN to 1.52 PLN per litre within one month.
Unsuccessful game
The oil market is determined in the short-term by speculation capital. However, in the perspective of a few quarters, Brent quotations have mostly been indicating fundamental changes that are trends regarding both supply and demand.
OPEC countries have made an agreement regarding oil production limits at the end of November. Many investors claimed that this will reduce chances for a decrease in prices. This caused the long positions to increase from 276k to more than 550k (data provided by CFTC). This was the largest involvement of speculation capital in the history of the oil market.
However, oil’s value reduced in February despite the OPEC agreement. Moreover, a similar agreement has also been made by non-OPEC countries. This most likely caused panic among speculation investors who started to close their long positions. This has increased the depreciation scale. The amount of long positions decreased by 100k between the 10th and the 17th of March.
The previous scenario caused Brent prices to reach their lowest level since November 2016. Moreover, market events helped fuel prices in Poland to reduce even more. Nevertheless, it’s difficult to believe that fuel prices will remain at such a low level in the near future.
Arguments in favor of higher prices
According to the International Energy Agency (IEA), the oil supply and its products decreased by 120 million barrels between August and December, reaching the level of 2.98 billion barrels. This was mainly related to a significant increase in demand during the fourth quarter of 2016. However, the IEA report for March indicated that this trend has been stopped but the perspectives for oil remain relatively positive.
The Agency estimates that if the above mentioned agreement is sustained until June, the OECD oil supply will decrease by an average of 500k barrels per day during the first six months of 2017. This means that the oil reserve will decrease by another 100 million barrels until July.
There is a chance that slate oil producers would cause depreciation pressure on prices in the second half of 2017. However, even the rapid mining of slate in the USA (9.1 million barrels per day) doesn’t make this scenario any easier to fulfill.
The IEA estimates that this year’s global oil demand has been increasing at the pace of 1.4 million barrels per day. Additionally, there is a risk that OPEC countries, as well as the other oil producers, would extend their agreement for the second half of 2017. This would mean an effective balance for increasing production in the USA.
As a result, the forthcoming months in the oil market will be determined by decreasing global supplies. This will increase the likelihood that oil prices will move from approximately 50 USD per barrel to the range of 55-60 USD per barrel. Therefore, fuel prices in Poland may increase by approximately 0.20 PLN.