In August, wholesale UK diesel prices temporarily dipped below 50ppl (excluding duty) during mid-month before climbing back to 51ppl by close. The underlying Brent crude benchmark showed similar movement as geopolitical tensions weighed against forecasts of weakening demand and surplus supply.
At the start of the month, OPEC+ opted to raise oil production by 547,000 barrels per day for September, a move that fully reversed the 2.2 million barrels of voluntary output cuts. The OPEC+ decision exacerbated existing oversupply concerns and reinforced predictions that global oil supply could outpace demand in 2025 and 2026.
Furthermore, US President Trump hiked tariffs on certain Indian goods to 50%, a decision labelled as “unjustified and unreasonable” by India’s affairs minister, as the nation relies on Moscow for an estimated 42% of its oil imports.
Meanwhile, traders focused on the meeting between Trump and Vladimir Putin to discuss an end to the war in Ukraine, with the potential for tighter sanctions if a peace deal was not agreed.
President Trump initially threatened “severe consequences” for Russia, but he later confirmed that new sanctions would not be introduced whilst ceasefire talks were ongoing.
The Trump-Putin meeting saw little progress, and a meeting was held between Trump, Zelensky and European leaders. Towards the end of the month, US and Russian officials reportedly discussed energy deals alongside Ukraine peace negotiations, causing further oversupply concerns.
Geopolitical tensions heightened as Ukraine ramped up attacks on Russian energy infrastructure. In retaliation, Russia attacked six Ukrainian regions with strikes, causing mass power outages affecting 100,000 people.
While oversupply concerns persisted, short-term demand sentiment appeared optimistic, indicated by depleting US crude inventories. However, investors expect US fuel consumption to reduce as the summer driving season ends, putting further pressure on oil prices.
Meanwhile, GBP/USD was volatile throughout August as diverging monetary policy expectations and political pressures continued to impact both currencies. At the start of August, the dollar weakened due to disappointing nonfarm payroll data, leading to forecasts of upcoming Federal Reserve interest rate cuts.
In the UK, concerns over economic growth saw the Bank of England (BoE) reduce its base rate by 25 basis points to 4%. Despite that, sterling initially strengthened to US$1.356, supported by resilient labour data. Additionally, analysts have warned that BoE may have prematurely cut rates, as UK inflation rose at the fastest pace since January 2024 at 3.8% year-on-year in July.
However, towards the end of the month, the dollar regained ground as stronger US Purchasing Managers’ Index data and rising producer prices reduced expectations of imminent Federal Reserve monetary policy easing.
Meanwhile, President Trump continued to threaten the Federal Reserve’s independence, attempting to fire Governor Lisa Cook following allegations of mortgage fraud. In response, Cook has sued Trump, claiming he has no such authority.
The dismissal of Governor Cook could increase the likelihood of heavy interest rate cuts, given Trump’s ongoing pressure on the central bank to reduce borrowing costs. Overall, GBP strengthened from US$1.326 to US$1.351 across the month, equating to a reduction of almost 1 ppl in UK wholesale diesel prices.
Wholesale UK renewable diesel (HVO) prices remained steady across the month, trading around 132ppl (excluding duty and RTFC benefit) and remaining high after a strong Q2.
Renewable diesel prices are expected to remain strong due to higher blend targets in the Renewable Energy Directive, alongside the additional certification restrictions that have been proposed in Germany.
On the supply side, EU anti-dumping duties on Chinese biodiesel and HVO earlier this year continue to impact the market. In the US, imports of used cooking oil (UCO) fell drastically in June as flows from China plummeted.
Chinese UCO to the US has slowed significantly compared to a year ago, due to trade tensions between the two countries, although US tariffs on Chinese imports were also lowered for an initial period of 90 days in early June.
Additionally, Chinese exports of UCO fell to a three-month low in July as shipments to Europe and Asia also tumbled.
In other news, the UK Trade Remedies Authority has recommended imposing a general anti-dumping duty of 54.65% on Chinese biodiesel and renewable diesel, following an investigation that revealed that Chinese exporters were undercutting UK competitors.
The new duties will bolster the case for Chinese renewable diesel producers to pivot to sustainable aviation fuel (SAF), as SAF was exempted from anti-dumping duties in both the UK and EU.
Finally, the cost of blending biodiesel to the UK B7 specification rose marginally from 7ppl to 7.6ppl, thus increasing the cost of the Renewable Transport Fuel Obligation (RTFO).
Meanwhile, the price of Renewable Transport Fuel Certificates (RTFCs) also rose marginally from 24.5p per certificate (ppc) to 25ppc, slightly increasing the benefit that HVO consumers received (assuming 100% of the RTFC benefit is passed on the end user).
