Fuel and Oil Prices to Skyrocket

The Russia-Ukraine conflict is now common knowledge across the world. Tragically the devastation has caused result in the loss of livelihoods, lives, infrastructure as well as trade sanctions between Russia and the powerhouse countries of the world. We have seen gradual interest rate increases following the pandemic, now coupled with the added pressure of Russia’s war. However, the exponential price hikes in fuel and oil have lead to some nasty spikes in its already steep price.

Russia is the third-largest petroleum producer in the world, after the United States and Saudi Arabia. Since mid-January 2022, the geopolitical risk related to Russia’s invasion of Ukraine has contributed to higher and volatile crude oil prices. The strong demand for petroleum, since the COVID-19 pandemic has begun to ease; however, slower crude oil production growth has also put upward pressure on the global crude oil prices.

There are many contributing factors that trigger oil price shocks. These include large shifts in either demand or supply anywhere in the world, since oil is a global commodity. This can be periods of rapid economic growth in major importing nations and domestic problems in supplier countries, such as political conflict or lack of investment in the oil industry. Overall, the worst spikes consist of a combination of two (or more) of these factors – and that is the situation we currently face today.

Countries all over the world have had to endure increasing prices. Be it in the form of food, fuel or basic amenities. The imminent price jump in crude oil has lead to petrol skyrocketing in price – affluent first world countries such as the USA were not safe from the price hikes. The fact that multiple fuel giants (BP, Shell and Exxon) have all severed ties with Russian energy deals – has put an increased amount of stress on the already volatile resource.

In just a short amount of time, prices have risen from $65 a barrel to $130 a barrel, causing the cost of fuel to surge, inflationary pressure to rise and consumer tempers to flare. However, even before the Russian invasion of Ukraine the fuel prices where increasing at a rapid pace because of the roaring demand and limited supply growth.

With the ever-growing supply and demand of crude oil, countries have to pay the highest possible price to ensure they receive their optimal amount. This leads to immense spikes in prices and less affluent countries having to scramble in order to secure their fuel quota. It is important to know that fuel prices are affected by two crucial components – the exchange rate and changes to international petroleum product costs, which is typically driven by oil prices. Due to the Russia-Ukraine crisis; both of these components have faced significant price increases.

Despite all these hikes, the exchange rate has eased out due to Russia’s current standing with the world. This is due to investors opting for safer assets within the commodity market. This is good for South Africa as it may allow in very minor price drops – but it’s too early to dictate if this will be the case.

When we look at the price hikes that have been constantly growing over the past 3 years – it is plain to see why the conflict would have played such a serious role in pushing it over the edge. With the pandemic already crippling many economies and their industries all over the world – the conflict in the Ukraine has pushed the global economy over the edge.

At Debtco Group, we aim to help each and every South African citizen conquer their battle with debt. If you feel that your wallet is taking strain from the Russian conflict and the impending price hikes – contact us today. Let us be your solution.