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UAE petrol prices set to remain in check as crude market braces for glut

Attacks on oil infrastructure or the closure of the Strait of Hormuz are low-probability events

Residents in the UAE can hope that the current trend of moderate petrol and diesel prices will continue for quite some time as the global crude market is setting the stage for sustained lower prices.

Concerns of a mounting supply glut in 2025 owing to Opec and International Energy Agency’s demand-side downgrades along with hopes that Iranian oil installations will not come under attack in a potential flare-up of the regional conflict are key potential factors that will keep oil prices under check in 2024-25.

While lower crude prices will also help bring down food price inflation, which has skyrocketed over the past couple of years owing to the escalating cost of transportation and logistics, for the region’s economies reliant on oil income unlike the diversified UAE, the scenario would have negative implications.

Petrol prices in the UAE, which reached an all-time high in July 2022, with Super 98 costing Dh4. 63 per litre, fell to Dh2.66 in October this year, providing a big relief to residents. Today’s lower price trends reflect the current crude market prices hovering around $80 a barrel compared to the peak crude price of $123.70 in 2022.

Energy market analysts argue that while Opec+ output cuts support prices, a feared supply surplus could drive a bearish market outlook as Chinese demand slows and geopolitical risks in the Middle East persist. There are also signals of a stronger dollar in the event of Trump win, posing another headwind for oil prices, they said.

However, some market pundits believe that crude oil prices could surge by $20 per barrel if Iran’s oil supply drops in a possible escalation of the Middle East conflict.

While Swedish bank SEB has even warned that crude futures could rally to more than $200 a barrel in an extreme scenario of Israel targeting Iran’s oil facilities, some analysts warn that an even more significant disruption to supply from the Middle East could lead to triple-digit oil prices. But they believe attacks on oil infrastructure in other producers in the region or the closure of the Strait of Hormuz are low-probability events.

Energy experts are equally puzzled that despite the escalation in Middle East conflicts, and the possibility of major supply disruptions, oil prices remain almost stable. The main reason is that the market well-supplied with a big buffer despite efforts by the Organisation of the Petroleum Exporting Countries and allied producers, together known as Opec+, to implement voluntary production cuts in the past two years. Opec+ recently delayed a planned output increase for October until at least December, and 2025 does not look much better for market balances. The International Energy Agency estimates that Opec+ has more than five million barrels per day of spare capacity.

Another reason is that the oil market no longer overreacts to potential supply risks. New intelligence tools including satellite surveillance and tanker trackers provide near-real-time data on loading, shipping, and inventory levels. These new resources have tempered price responses to potential supply disruptions, according market experts.

The third reason, according to pundits, is that the geopolitical climate in the Gulf has changed. A China-brokered agreement between Iran and Saudi Arabia in 2023 showed a new desire to contain tensions. The scenario of the closure of the Strait of Hormuz — home to about 30 per cent of the world’s seaborne oil transit—now appears overblown.

In the short term, the crude oil market remains bearish, with weak Chinese demand and a looming surplus likely to keep prices under pressure. While Opec+ cuts may offer temporary support, the overall outlook points to lower prices unless there is a significant supply disruption or policy shift.

Currently, crude futures hover below key moving averages, signaling potential for further declines as demand weakens. Light crude oil futures remained nearly flat on Wednesday as traders assess the risk of supply disruptions in the Middle East ahead of the US Energy Information Administration’s (EIA) inventory report. “While much of the “war premium” has been priced out, concerns linger about potential escalation. Weak Chinese demand also continues to weigh on prices, raising doubts about global consumption,” energy experts said.

Technically, oil is trading around a key retracement zone of $72.21 to $69.79. With prices below both the 200-day moving average ($73.43) and the 50-day moving average ($71.60), the market bias remains to the downside.