Surge in crude oil and gas prices reignites concerns for motorists and utility bills

Motorists will pay more for their petrol by the end of the month after the sharp rise in the price of crude oil.

A sharp rise in the price of crude oil could mean motorists will pay more for their petrol by the end of the month, while a rise in wholesale gas prices may delay cuts in utility bills for households and businesses.

Brent crude oil surged on Monday by over 5% to about $85 a barrel, putting $100 a barrel back on the horizon, after the group of oil producers known as Opec+ announced a surprise plan on Sunday to cut output.  

Analysts scrambled to update their price forecasts though the end of the year. It takes at least two weeks for any sustained large increase in global rises in Brent crude to feed down the pipeline into price changes at petrol forecourts. 

Russia's invasion of Ukraine had sent crude prices last year spiking as high as $133 a barrel, but crude oil traded at an average price of $101 a barrel through the full year. This year, the average price had eased back to $82 a barrel.                            

“There’s a bullish narrative,” Bob McNally, president of Rapidan Energy Group and a former White House energy official, said in a Bloomberg TV interview following the Opec+ decision. 

“If they cut into a bullish narrative, then $100 — we’ll go through it at high speed.”  

The reduction surprised markets, which had expected the cartel to hold output steady. 

Prior to the announcement, the cartel’s own numbers suggested the group would need to pump more oil, not less, in the second half. 

With the International Energy Agency expecting a demand surge later this year, there is now renewed risk of a fresh inflationary impetus for the global economy.

“This cut proves again that Opec+ is proactive in managing the supply-demand balance and requires $90 to $100 a barrel,” said Nadia Martin Wiggen, an analyst at Pareto Securities.

Goldman Sachs said the surprise cut in output was "consistent with their new doctrine to act pre-emptively because they can without significant losses in market share”. 

This, combined with the extension of the Russian production cuts, led Goldman Sachs to raise its Brent oil forecast to $95 a barrel for December this year from $90 earlier, and to $100 a barrel for December 2024 from $95.    

Bank of America said any unexpected 1m barrel per day change in supply or demand conditions over the course of a year could impact prices between $20 and $25 per barrel. 

Meanwhile, European wholesale gas also rose sharply, reversing gradual falls since prices peaked at a record of €310 per megawatt hour last summer.  

Futures markets showed the price of gas for delivery in May also rose by 5% and traded at more than €50 per megawatt hour late Monday. 

Wholesale gas for delivery in August was also trading significantly higher, at more than €51 per megawatt hour. 

The price of wholesale gas is closely watched because a large portion of the power on the grid in Ireland and in other parts of Europe is generated by gas-powered stations, in particular when the wind does not blow during the spring and summer months. 

• Irish Examiner. Additional reporting Bloomberg