Red diesel pushed up above 80p/litre by high oil prices

Rising global crude oil markets, lower UK stocks and high distribution costs have been supporting red diesel prices in recent months.

Traders say demand for use in agriculture has been strong throughout August and is likely to remain so into September.

UK red diesel prices were up 6.2% in August to average 82.61p/litre during the month. However, prices are still 26% down on August 2022 levels.

See also: Fuel price outlook: Red diesel steady but volatility remains

Brent crude oil rose above US$90 (£71.53)/barrel for the first time this year on 5 September, up $4 (£3.18) on month-earlier levels.

Duncan Lambert, managing director at Rix Petroleum, said demand is outstripping supply and forcing the price up.

“Last year’s harvest was very quick and dry, with limited volumes of fuel being used, while this year has been a more normal harvest and more fuel has also been used for drying crops.”

Mr Lambert said the spot market is currently about 4.5p/litre higher than contract prices.

Demand is expected to remain in the short term, as farmers move on to harvesting potatoes and sugar beet and also start drilling.

“I see September as being strong due to demand. In October, if people slow down and stop using as much, I could see the price dropping back,” he added.

Global picture

Neil Cooper, marketplace manager at Yagro, said the biggest factor driving oil markets is that Saudi Arabia has cut its oil production and it is likely to remain at a reduced volume until at least October.

Mr Cooper said this cut had been put in place by Saudi Arabia because prices were falling due to higher interest rates in the UK and the US, driving fears of a potential recession, which would then lead to a decrease in global fuel demand.

“The joint oil database initiative has been saying that UK stocks of oil hit their lowest point in seven years back in July.

“We are using loads of oil in the UK at the moment and flights are now back above pre-pandemic levels.”

Demand from agriculture is also reportedly high, and Mr Cooper said Yagro had its biggest month of orders in August.

“That demand is not going to decrease as we go into cultivations, so we are expecting demand to stay steady for a few months.

“It looks like prices are going to hold where they are, at least, if not rise,” he added.