Will petrol and diesel prices go up now?

Oil prices jumped about 10% after US and Israeli strikes on Iran and Iranian warnings to avoid the Strait of Hormuz — a route carrying roughly 20% of global oil and gas — raising the risk of higher petrol and diesel costs in the UK. AA data shows average petrol at 132.6p/l and diesel at 142.3p/l, while RAC scenarios suggest sustained oil at $80–$100/bl could push petrol toward 136–150p/l; higher fuel costs could also lift transport and fertilizer-driven food prices. Household energy bills are shielded until the April price cap but the July cap and variable tariffs could reflect any persistent wholesale rises, complicating the Bank of England’s planned rate cuts despite recent easing to a 3.75% policy rate.

Analysis

Market structure: A sustained disruption in the Strait of Hormuz would mechanically tighten seaborne supply (≈20% of global oil flows) and reprice crude into a deficit; spot Brent moving above $80/bbl for >2 weeks would materially raise refinery feedstock costs and pump prices (UK petrol +3–12p/L by modelled RAC scenarios). Winners are integrated oil majors (XOM, CVX, COP) and tanker owners (STNG, NAT) who capture higher spot realizations and freight; losers are airlines (AAL, UAL), long-haul logistics fleets, and fuel-exposed retailers with thin margins.

Risk assessment: Tail risks include a protracted closure of Hormuz (low probability, high impact) that could remove 5–10% of seaborne supply and drive Brent toward $120–150 in 3–6 months, or rapid diplomatic de-escalation returning price to $65–75. Hidden dependencies: fertilizer and agricultural input prices (ammonia/urea) are oil/natural gas linked and can transmit to food inflation with 3–6 month lag, pressuring discretionary consumption and central bank policy paths (BoE pause vs. re-tighten).

Trade implications: Tactical longs: 2–4% positions in XOM/CVX (scale in if Brent >$80 sustained 10 trading days), short 1–2% exposure to AAL/UAL or buy 3–6 month ATM puts if jet-fuel implied >$90. Use options to cap risk: buy BNO (Brent) 3-month call spread (buy $70 / sell $95) sized to 1–2% NAV; buy 1–2% TIPs (TIP) as inflation hedge. FX: short USDCAD (1% notional) if WTI/Brent rally persists.

Contrarian angles: Consensus prices in media assume immediate pump pass-through; history (2019–2020) shows retailers absorb some short shocks. If disruption is <30 days, energy equities often rally intraday then reverse; avoid paying up for long-dated volatility — prefer calendar-limited call spreads. Monitor OPEC+ output responses and insurance “war risk” premiums (LR2/LR1 freight rates) as early divergence signals.

Key Decisions for Investors

• Establish a 2–4% combined long equity position in integrated majors XOM and CVX (1–2% each). Scale allocation up by an extra 1–2% if Brent > $80/bbl for 10 consecutive trading days; trim to half if Brent falls below $70 for 14 days.
• Initiate a 1–2% short/put hedge on airlines (e.g., AAL or UAL). Purchase 3–6 month ATM puts sized to 1–2% NAV or short 1–2% notional exposure; add if jet-fuel implied price maps to Brent > $90 for 2 weeks.
• Buy a 3-month Brent call spread via BNO (buy $70 / sell $95) sized to 1–2% NAV to express a capped upside on crude; roll or exit if Brent trades above $120 or falls below $75 for 10 days.
• Allocate 1% NAV to FX: short USDCAD (or long CAD pairs) as a commodity-currency hedge; enter if WTI/Brent rally >10% over 2 weeks and exit on reversal >8% over 5 days.
• Hold 1–2% in inflation-protected exposure (TIP or TIPS ETF). Add if UK/US CPI prints rise by >0.3pp sequentially or BoE signals pause reversal within next 2–3 months.