As we bid farewell to another year of constantly fluctuating fuel prices, we begin 2023 safe in the knowledge that we have absolutely no way of knowing where the market will take us, but we are braced and ready to respond with confidence. The main factor that drives the direction of the market is, of course, the global replacement cost of a barrel of oil. However, there are many other factors that contribute to our pricing levels on a day-to-day basis – including our operational overheads and the cost and availability of transport and storage, with increasing interest rates and soaring inflation presenting additional challenges to our business.
The price of oil has certainly seen some dramatic ups and downs over the last few years. In the spring of 2020, the COVID-19 pandemic caused a sharp fall in the Brent and WTI crude indexes from around $60 to $18 per barrel and then into negative territory (for the first time in history), as lockdowns closed borders, halted manufacturing and grounded planes. The oil price gradually recovered by the end of 2021 as the supply glut eased and demand increased. However, when Russia invaded Ukraine in early 2022, the price of oil soared to over $100 per barrel, fluctuated wildly for a few months and then peaked at $122 in June. It then went down, then up, and steadily down again until the end of 2022, settling at around the $80 mark.
Looking ahead to 2023, a number of key factors are expected to affect the supply and demand for oil, and therefore its price. The end of COVID-19 restrictions in China is likely to increase demand, while a looming global recession threatens to decrease it. Government decisions about strategic oil reserve levels around the world will have an impact, as will the performance of the US shale oil market. In October 2022, the 13 OPEC members (that collectively hold more than 80% of the world’s proven oil reserves) and the 10 nations that form the OPEC+ alliance agreed to cut production targets by two million barrels per day until the end of 2023. Curbing supply in this way will probably keep prices high and further drive up inflation. Meanwhile, in December, the Price Cap Coalition (the G7 and Australia) and all EU member states agreed to impose a price cap of $60 per barrel on seabourne Russian crude oil, in an attempt to stabilise global energy markets and prevent Russia from profiting from its war in Ukraine. Whatever happens in the months and years to come, the only certainty is that ongoing volatility in the oil market will continue to make it impossible to predict.
The relationship between the global price of oil and the world’s evolving climate crisis is also extremely complex and paradoxical. Many of the countries that economically depend on oil exports are also experiencing the devastating environmental and social consequences of climate change. The UN Climate Change Conference COP27 convened in November to work towards the goals of limiting global warming to 1.5°C above pre-industrial levels and reducing global greenhouse gas emissions by 50% by 2030 – so clearly all nations need to reduce their reliance on fossil fuels such as oil. However, there is much work to be done before we even get close to achieving these goals. It will require political unity, significant investment, and a genuine commitment to building the infrastructure that supports renewable low-carbon energy sources to sustain and protect future generations.
On a micro-level, the success of the Geos Group and our customers pivots around all of these issues and more. We are primarily an energy and logistics specialist that stores, transports and supplies a number of different fuels to a range of businesses: We sell renewable hydro-treated vegetable oil (HVO) to some vehicles, and diesel to others; we supply marine gas oil to ship operators that support the construction of North Sea wind farm sites, and others whose long-term strategy is to switch to LNG, biofuels or battery-power but haven’t done it yet. We will continue to respond to the shifting marketplace as global events unfold. In the meantime, we offer a range of financial services to assist our customers as they also navigate movements in the energy markets. We offer formula and contract pricing options, hedging and fixed price arrangements to minimise financial risk, and flexible payment terms and credit facilities.
For more information, please email [email protected] or call +44 (0)1491 845474.