"The trend is about to reverse": Julius Baer with a forecast on fuel prices
After conflicts in the Middle East and Russia pushed refining margins to a record high and affected gas stations, Julius Baer bank reveals a surprising forecast regarding the future of fuel prices in the near term.
Petroleum products have been at the center of the current shock in the global energy market, as conflicts in the Middle East and Russia created a localized shortage and pushed refining margins—the difference between crude oil costs and the prices of its products—to record levels, exceeding those of the 2022 energy crisis.
However, Norbert Rücker, head of economics and next-generation research at Julius Baer bank, estimates that the heavy pressure on the market is expected to begin to dissipate soon. The main factors that pushed prices upward were a sharp decline in oil and petroleum product inventories in the United States to below the seasonal range, alongside severe damage to refining capacity in conflict zones.
Fighting in the Middle East and Ukrainian attacks on Russian oil infrastructure have removed a significant portion of global refining capacity from the market. As a result, refineries in the USA are operating at near-full capacity, and fuel prices at gas stations remain high, raising concerns among central bankers.
Despite the heated picture, Julius Baer bank points to a series of factors that will lead to a cooling of the market later on. First, the end of the summer driving season in the United States will lead to a natural decline in demand for gasoline.
In addition, unlike the tight situation in North America, petroleum product inventories in Europe and Asia have remained within the seasonal norm. At the same time, refineries are expected to postpone maintenance work to take advantage of high profitability, China continues to export petroleum products, and the general improvement in crude oil supply is expected to utilize available refining capacity in Asia.
The refining industry is historically characterized as a sector with particularly short cycles, and it is likely that this time, too, the trend will reverse quickly. Although high refining margins are currently keeping fuel prices at a high level, the adjustment of supply and demand alongside increased production in Asia are expected to translate the improvement in supply and bring about a cooling of the market in the near future.
