UAE petrol prices to drop in July after four months of increases - but by how much?

Dubai: UAE motorists will finally see some relief at the pump in July after four consecutive months of fuel price increases, as global oil prices drop sharply from the highs triggered by the Middle East conflict.

The case for lower fuel prices next month is stronger than at any point since the war began on February 28. Since then, UAE retail fuel prices have surged by more than 60 per cent as disruptions to shipping through the Strait of Hormuz sent global energy prices soaring.

In June, Super 98 was priced at Dh3.95 per litre, Special 95 at Dh3.83 and E-Plus 91 at Dh3.76. Diesel was set at Dh4.33 per litre. For motorists, the increases have been substantial.

Super 98 has climbed from Dh2.45 per litre in February to Dh3.95 in June, an increase of more than 61 per cent. A 60-litre tank that cost around Dh147 to fill in February now costs approximately Dh237. For owners of larger SUVs and 4x4s with 80-litre tanks, the cost of a full tank has risen from roughly Dh196 to Dh316.

The sharp rise reflected a global oil market gripped by fears of prolonged supply disruptions after Iran effectively closed the Strait of Hormuz, one of the world's most important energy shipping routes. Around 20 per cent of global oil and fuel supplies pass through the waterway.

The outlook for July is markedly different from the conditions that shaped June prices.

While June fuel rates reflected May's elevated oil average of around $106 per barrel, Brent crude has spent much of June moving sharply lower, falling from around $95 at the start of the month to near pre-war levels in the low $70s.

Brent briefly dropped below $72.50 a barrel this week, returning to levels last seen before the conflict erupted. Because UAE fuel prices are linked to monthly average oil prices rather than daily movements, the sustained decline throughout June is expected to feed directly into July pricing.

Barring a fresh supply disruption or renewed tensions in the Gulf, the current trend points to the strongest case yet for a noticeable reduction in UAE petrol prices after four consecutive months of increases.

A major reason behind the oil market's reversal has been the recovery in shipping through the Strait of Hormuz.

Vessel traffic in the strait has returned to pre-war levels, with CNN and MarineTraffic data showing the number of ships crossing the waterway doubled over a 24-hour period to the highest level since late February.

A Liberian-registered oil tanker also successfully exited the Strait of Hormuz this week using a new route close to Oman promoted by a UN maritime agency, highlighting growing confidence among shipping operators that normal trade flows are resuming.

The number of vessels moving through the route remains slightly below pre-conflict norms, but the improvement has been enough to convince many traders that the worst supply concerns have passed.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said the market is now focused on returning supplies. "The move lower may appear counterintuitive given that the world has just experienced the largest oil supply disruption on record, resulting in an estimated 1.3 billion barrels of lost production from the Middle East.

"However, in the short term, the market is no longer focused on the barrels that were lost. Instead, attention has shifted to the barrels that may soon return." Norbert Rücker, Head of Economics and Next Generation Research at Julius Baer, said ship-tracking data shows exports are already recovering.

"Based on ship-tracking data and anecdotal news, oil seems to be flushing out of the Middle East. Exports are likely back above 80 per cent of the pre-crisis normal, which suggests that the market has flipped from deficit to surplus."

Ipek Ozkardeskaya, Senior Analyst at Swissquote, said the return of visible vessel traffic through Hormuz has helped push prices lower. "A combination of strategic inventory releases, a collapse in demand from top buyer China and a substantial number of tankers quietly leaving the Arabian Gulf 'dark' had contributed to a small oversupply in some important markets."

Susannah Streeter, Chief Investment Strategist at Hargreaves Lansdown's Wealth Club, tied the market move back to consumers. "Fears of a long-lasting global energy crunch induced by the Iran conflict are slinking away, with oil prices sinking back towards pre-crisis levels."

With the official July fuel prices set to be announcedin a few days, the current oil market trajectory points towards the first meaningful reduction in fuel prices since the conflict began.

If Brent remains in the low-$70 range for the remainder of the month, the decline in UAE petrol prices could be substantial compared with June levels.

A reasonable expectation is that Super 98 could fall back towards the Dh3.20-Dh3.50 range, with similar reductions across Special 95 and E-Plus 91. Diesel prices could also move lower, although diesel tends to react more slowly because of global freight and industrial demand.

The exact outcome will depend on the average crude and refined fuel prices used by the UAE Fuel Price Committee when setting July rates.

Because fuel prices are calculated using monthly averages, motorists should not expect pump prices to immediately match the lowest daily oil prices seen in June.

The outlook remains dependent on the fragile peace process between the US and Iran. Under a memorandum of understanding signed this month, both sides agreed to a 60-day negotiation period aimed at reaching a permanent agreement.

Markets are watching closely for any sign that tensions could return. Israel launched an air strike in southern Lebanon on Wednesday, the first since the latest ceasefire took effect, highlighting how quickly geopolitical risks can re-emerge.

The Strait of Hormuz also remains a key factor. Although shipping activity has largely returned to pre-war levels, energy markets remain highly sensitive to any disruption involving the route.

For UAE motorists, the direction of travel is becoming clearer. June reflected an oil market that averaged well above $100 per barrel. July is shaping up to reflect a market that has largely returned to pre-war conditions.

If crude remains near current levels and the peace process continues, UAE fuel prices could record their first meaningful decline since February, reversing part of the steep increases motorists have absorbed over the past four months.

That would mark the first clear sign that the worst of the fuel price shock may finally be starting to ease.