IEA Numbers Point to a Two-Speed Recovery in Global Fuel Prices

Five months after the U.S.-Israel conflict with Iran began, global fuel markets remain unsettled, according to the latest data from the International Energy Agency (IEA). On August 7, the IEA's monthly end-use price tracker indicated that the average diesel price per liter was $1.94, 14% higher than in February. Gasoline prices, meanwhile, were relatively stable, peaking in May at $1.99 per liter and remaining flat since then.

The disparity between diesel and gasoline prices can be traced back to the war's onset. On February 28, U.S. and Israeli strikes against Iran resulted in the country's supreme leader's death and a sharp increase in Brent crude prices from $72 to $120 per barrel within weeks, marking the sharpest one-month rise since the 1990 Gulf War.

The Strait of Hormuz, which carries about a fifth of the world's oil, saw a significant decrease in tanker traffic due to insurance pullbacks and Iran's threats to sabotage passing vessels. Although crude prices have since decreased, they are still up more than 30% from a year ago.

J.P. Morgan forecasts Brent to average $86 in the third quarter and decrease to $78 by year-end, provided the war does not escalate further. However, this remains a significant assumption, as Iran and Oman are still negotiating the terms for a full Hormuz reopening, and these negotiations have resulted in fluctuating prices.

The impact of this volatility on different countries is evident in the IEA's data. Germany's diesel and gasoline prices increased by more than 10% in July, partly due to the temporary fuel-tax discount introduced in May. Poland experienced an even sharper rise. In contrast, the U.K., Ireland, Sweden, and Cyprus saw a decrease in pump prices. These differences highlight the importance of national taxes and currency fluctuations in fuel prices.

Diesel prices remained stubbornly high in July, indicating tighter distillate supply. Russian refinery strikes have significantly reduced Russian crude-processing rates, leading to fuel rationing in nearly 90% of the country's regions. This has further tightened the supply of diesel and other middle distillates globally, despite the relatively better supply of gasoline.

In the U.S., diesel is roughly $4.96 per gallon, and gasoline is $3.93, both still above their year-ago levels of $3.78 and $3.12. Whether these prices decrease further depends more on the developments in the Gulf than OPEC output.