Crude oil loses almost 6% in two sessions on hopes of a reopening of the Strait of Hormuz, but traffic remains significantly reduced and diesel still costs over 2.20 euros on the motorway: why the drop in oil does not reach the pump immediately and what can change due to the government’s decisions.
Oil suddenly changes direction. After returning to close to 92 dollars a barrel in recent days, Brent fell today to around 86.3 dollars, losing more than 2% in the morning alone and almost 6% in the space of two sessions.
Movement is important not only for markets. If it lasts, it could progressively ease the cost of petrol and diesel and reduce pressure on the government just as the current intervention on diesel excise duty expires.
Behind the decline there are, above all, new hopes on the Strait of Hormuz. Iran and Oman have resumed talks on the possibility of creating a temporary shipping corridor and starting mine removal. The market is therefore starting to bet on a normalization of energy flows, even if for now there is no real reopening yet.
Because Brent fell from 92 to 86 dollars
The decline in oil prices arises from the combination of three factors.
The first is precisely the dialogue between Iran and Oman. Hormuz remains one of the world’s most important passages for oil and gas and any sign of improved navigation safety reduces the risk premium incorporated into the prices.
The second concerns American sanctions on Iran. Despite strong political pressure from Washington, the market has so far judged the new measures to be less dangerous for global supply than a new military escalation.
Finally, an unexpected increase in crude oil inventories came from the United States: according to preliminary data from the American Petroleum Institute they grew by 4.2 million barrels, much more than expected. More oil available tends, all other things being equal, to reduce pressure on prices.
Brent is the main international reference for crude oil also used in Europe and its trend also influences, with different times and methods, the cost of fuel.
Hormuz remains far from normal
The market is therefore anticipating a better scenario, but the navigation data calls for caution.
Only five commodity-related commercial vessels passed through the Strait of Hormuz on Tuesday, compared with an average of around 15 over the previous ten days.
This means that the price of oil is falling, above all, because operators are hoping for a solution, not because flows have already returned to normal.
And it is also the reason why Brent could remain very volatile: a concrete agreement on the maritime corridor could push it further downwards, while a new failure of negotiations could quickly bring the risk on supplies back to the fore.
Brent down 6%, because petrol and diesel do not fall immediately
It’s the most immediate question for motorists: if oil is losing almost 6%, why haven’t we yet seen a similar drop at the pump?
Because the price of Brent and the price of fuel are not the same thing.
Brent is crude oil. Before arriving at the distributor it must be refined and transformed into petrol or diesel. The final price is then influenced by the international prices of refined products, the euro-dollar exchange rate, transport and distribution, operators’ margins and above all taxes and excise duties.
There is also a time delay: a movement of crude oil recorded today is not normally transferred in full to the distributor the following day.
However, the latest official data from Mimit on fuel prices show self-service diesel remaining above 2.20 euros per liter on the motorway network, despite the tax cut still in force.
The drop in oil prices also changes the game on excise duties
Brent’s decline comes at a particularly delicate moment for the government.
Today the current reduction of around 17 cents per liter in excise duties on diesel expires. Palazzo Chigi is working on a new temporary extension, intended to act as a bridge towards a more selective intervention against high energy costs.
And this is where the new oil movement can become politically relevant.
If Brent remained steadily in the area of 85-86 dollars and fuel prices began to fall, the need to finance a generalized discount for all motorists would progressively decrease. The government could, therefore, have more space to concentrate resources on the lowest incomes or those most exposed to high fuel prices.
It does not mean, however, that the excise duty cut can be eliminated without consequences today: the tax benefit remains embedded in current diesel prices and its cancellation would have an immediate effect, while the drop in crude oil prices takes time to reach the pump.
Lower oil, what changes for inflation and rates
Finally, there is a less visible but important consequence for families, businesses and markets.
Cheaper oil reduces energy costs and, if the movement lasts long enough, can help curb inflation.
For Europe the transition is particularly important: only a few days ago oil above 91 dollars once again fueled fears about inflation and rates. Today the scenario has reversed.
QuiFinanza has already explored how Hormuz can impact the European economy and energy costs. If crude oil remains lower, some of that pressure could ease, with potentially favorable effects on bond yields and expectations for central banks as well.
The real question, however, is how long it will last. Brent at 86 dollars is already good news for those who import energy, including Italy, but for it to really translate into cheaper fuel and less pressure on rates, the détente on Hormuz will need to move from words to ships.
