Petrol prices in the UAE are expected to rise again in November, as the recovery in Middle East oil supplies does not immediately translate into a return to normality for the energy market, according to analysts.
Costs at the pumps rose for a third consecutive month in October due to lingering uncertainty around a potential US-Iran truce.
Oil prices also recorded a sharp rise this month, as Yemen's Iran-aligned Houthi rebels stepped up their attacks on Saudi Arabia, causing crude to hit five-month highs this week.
On Friday, Brent was testing the $115 level, rising 1.32 per cent to $114.70 a barrel at 2.59pm UAE time. West Texas Intermediate added 1.57 per cent to $101.10 per barrel.
With Brent this month exceeding September's peak, “the risk of another increase in UAE petrol prices for November is elevated”, said Jordan Lawrence, chief executive and co-founder of London-based financial services firm Damisa.
“October’s fuel rates already rose significantly, and the committee’s end-of-month review will reflect the full month’s international averages, refined-product prices and costs,” Mr Lawrence told The National.
Oil movements across the Strait of Hormuz, which before the war made up a fifth of the world's energy exports, are gradually picking up, according to ship tracking data.
US Energy Secretary Chris Wright said last week that up to 14 million barrels of oil a day were moving through the strait, with Gulf crude flows recovering to between 80 and 90 per cent of prewar levels.
However, while October has shown a recovery in Middle East oil exports, that does not necessarily mean the market has returned to normal, said George Pavel, general manager at Naga.com Middle East, a capital markets firm operating in Abu Dhabi's ADGM.
“Ongoing threats to shipping and persistent uncertainty around the Strait of Hormuz continue to support prices. The key change is that the market is increasingly pricing the risk of further disruptions, instead of simply assessing current production and export volumes,” he told The National.
“Even when supply flows recover, the cost and reliability of transporting crude remain important constraints … if exports remain resilient and diplomatic progress reduces the threat to shipping, prices could retreat quickly.
“The next decisive factor will be whether October's security risks translate into lasting physical supply losses.”
Ahmad Assiri, a research strategist at financial services firm Pepperstone, noted that even if barrels continue reaching markets through the Strait of Hormuz, uncertainty over the reliability of future deliveries gives buyers a reason to pay a significant premium for now.
“Many buyers have become price-insensitive due to elevated uncertainty … a diplomatic breakthrough could provide some ease and a pullback,” he told The National.
“However, a sustained decline would require confidence that infrastructure and shipping routes can operate securely, which is a hard thing to see in the current environment,” he said.
“October has strengthened the conviction that the geopolitical premium will be persistent, and this in turn makes the eventual growth and inflation consequences more concerning.”