Callum Macpherson delivered an exemplary keynote to the Institute of Couriers transport master class February round table in the City of London. Focus on recent trends in global energy prices with detailed graphical insights to the trends. Callum explained, ‘Diesel has typically priced at a modest premium over crude, but now trades at a large and volatile premium since the war in Ukraine started. While Russia’s restrictions on gas supplies, sent gas prices up to astronomical values equivalent to 600 dollars per barrel in oil terms.’

However, gas prices have fallen dramatically over the winter and so the cost burden on the economy is much lower than it was. Government and consumers have benefited, but we have been exceptionally lucky to have such a mild winter. The weather was so mild in December that gas in storage was actually increasing at one stage. Is the problem solved? Unfortunately not, the underlying issue of reduced gas supplies has not gone away. Post winter, refilling gas storage ahead of next winter will be easier, but a harsh winter next year could change the picture completely again.

Turning to oil, there are now caps on the prices of Russian crude and refined products like diesel and while many key importers like China and India have not signed up to the cap, they are never-the-less using it as a bargaining counter and so the cap has kept the price Russia is earning on its oil below market prices, without excluding Russian production from the global market which is very important as Russia accounts for around ten per cent of world supply.

Demand is set to continue recovering this year particularly on the re-opening of China and by the end of the year could be well above pre-covid levels. But there is a risk that supply may struggle to keep up with that demand growth. Most OPEC+ members are struggling to reach their output limits, only Saudi Arabia and the UAE have much spare capacity. Outside of OPEC+, we are likely to see an increase in US output, but not much from elsewhere. The diesel market may get some help later in the year with new refinery capacity coming on line that will replace some older refineries that never came back into production after being shut down over covid.

Overall the market is looking tight, we may see more drama on the gas market over the next twelve months.