ECONOMIC COMMENT: Despite the start of the motoring season, let’s expect fuel prices to drop. What could change the situation?

CR – Fuels are set for the first significant discount of the year. And this despite the current start of the motorsport season. The reason is the noticeable drop in oil prices that has occurred in recent days. As recently as last week, Brent crude oil was selling at a price of around $90 per barrel. However, it closed at less than $84 on Wednesday.

Gasoline should drop in price by around thirty halters in the next seven days, from the average price of 40.33 kroner per liter the day before yesterday, and diesel by around fifty halers per liter – from its price of 38.95 kroner per liter the day before yesterday.

The expected drop in fuel prices is mainly due to the drop in oil prices on the world market. In addition to the high level of stocks in the USA, there are indications of a possible truce between Israel and Hamas, which would calm the situation in the Middle East. Oil traders would thus be assured that the probability of a failure of its supplies from the Middle Eastern region decreases significantly. As a result, the related risk premium, which is part of the price of oil, would be reduced – and it is partially already being reduced.

Hopes for a truce are now at their highest since a week-long truce struck last November. In addition, the current ceasefire would allow the United States to speed up the process of negotiating a historic agreement with Saudi Arabia. Based on it, Washington would provide Riyadh with security guarantees and open the way to establishing diplomatic relations between Saudi Arabia and Israel. That is, if Israel agrees to a truce in its war with Hamas in Gaza, which began last October.

Negotiations between Washington and Riyadh have intensified in recent weeks. If the US administration were to actually negotiate an agreement with Riyadh, it would also be the pre-election trump card for current President Biden. It would ensure a really fundamental calming down of the situation in the Middle East, which would lead to another significant drop in the aforementioned risk premium in the price of oil.

But there is also a risk of quite the opposite scenario. Although immediately, the markets are hoping for a fundamental calming down of the situation in the Middle East. The opposite scenario, fortunately less likely, assumes a direct military clash between Israel and Iran, which has long supported the Hamas terrorists. This conflict would include attacks on oil facilities in the Middle East region, so the price of oil could soar above $150 per barrel, according to Bloomberg. Fuel prices in the Czech Republic would thus significantly exceed the level of 40 crowns per liter, and could even approach the level of 50 crowns per liter.