Driving on to the fuel station forecourt feels a bit like a game of roulette these days.

Will the price per litre exceed €2 or could there be a pleasant surprise waiting on the neon sign?

Recently, after a sustained period of the former, it has been a return to the latter as fuel prices have been falling back towards levels we've been more used to in the last decade or so.

So, what's causing the price volatility as well as the recent welcome fall in the cost of fuel, and can prices stay on a downward path?

What's driving fuel prices?

The price we pay on the forecourt is closely linked to the wholesale cost of fuel.

That's determined by the price per barrel of crude oil and of the production costs to turn the oil into petrol or diesel.

And then there are the costs associated with delivery and distribution, forecourt costs, retailer profit margins (which the industry insists is wafer thin), sales and marketing and, of course, taxes and duties.

While most of those items remain fairly constant, the variability generally comes from the price of oil, which has been exceptionally volatile since the Russian invasion of Ukraine (although oil prices had been rising in advance of the war contributing to the early stages of the inflation surge that we're experiencing).

Shortly after the invasion, the price of a barrel of Brent crude - the international benchmark - surged to over $120.

It later came back to hover at around $100 a barrel, but prices have since dropped further.

OPEC see-saw

There's no denying that oil producing nations have been enjoying an unexpected moment in the sun as far as prices are concerned, which some analysts have said could be the 'last hurrah' for oil as the world turns to an energy future based more on renewable and less polluting sources.

Having steadily risen until 2013, Brent crude prices started to decline before reaching pretty much rock bottom in the early days of the pandemic in 2020.

The oil producing nations of OPEC+ - which includes Russia - have attempted to support prices at various junctures by cutting production, thus limiting supply and driving the price higher.

Following political pressure, most notably from the US, the nations of OPEC+ agreed to scale-up production earlier this year to try to tame price increases brought about by the invasion.

However, recent fears about an impending global recession, as well as rolling Covid-related lockdowns in China, have prompted traders to sell futures contracts on the expectation of reduced demand, thus sending prices lower.

Cue a decision by OPEC in early October to reverse course and cut production again giving us the most recent spate of €2-plus car fuel.

Prices easing

Motorists have been pleasantly surprised in the last few weeks to see oil prices falling back again.

According to the AA, which carries out a monthly analysis of fuel prices nationally, the average price of diesel fell to €1.96 per litre from just over €2 at the same time the previous month and petrol prices fell back to €1.77 from €1.84.

Recent weakness in the US dollar - the currency in which crude is traded - has contributed to the favourable price movements.

Having hovered at or around parity with the euro for some months, the dollar has recently fallen back to more typical trading levels, in turn making oil products cheaper to import than they have been throughout most of this year.

However, it is the more fundamental shift in global energy markets that's driving pricing right now.

"There's a lot happening in the oil markets," Paddy Comyn, Head of Communications with the AA said.

"The EU is backing away from Russian oil. We were at around 50% Russian oil across Europe before the invasion but now we're back down to about 44%. As the EU looks for alternatives, the price could remain volatile, specifically for diesel," he explained.

There were a number of fairly seismic developments in the oil market this week.

On Monday, the EU implemented a ban on imports of seaborne Russian oil.

At the same time, the Group of Seven (G7) countries and Australia agreed that those shipping or insuring ships carrying Russian crude would have to adhere to a $60-a-barrel price cap on the product.

The aim of the cap is to keep Russian oil flowing to countries like India and China to avoid creating global shortages.

But it all depends on Russia playing ball to an extent. Moscow has said it won't, even if it has to cut production.

Where next for oil?

Oil prices fell in the immediate wake of the implementation of the price cap with Brent dipping as low as $76 dollars on Thursday - its lowest this year.

Craig Erlam, Senior Market Analyst with Oanda said it was now a question of how much weaker prices could get before OPEC+ steps in.

However, he pointed out there was a built-in limit to price falls, at least in the short term.

"The Biden administration has indicated that it could start purchasing crude for the SPR (Strategic Petroleum Reserve) when the price falls to $70 a barrel which could provide at least a temporary floor," he explained.

Other factors are likely to play their part in influencing pricing too.

"There are a lot of moving parts in the oil market at the moment with uncertainty around the outlook for Chinese demand as well as global demand with the extent of the economic slowdown yet to be seen," Victoria Scholar, Head of Investment with Interactive Trader explained.

She noted that OPEC+ had decided to stick to its current schedule when it met last Sunday but added that it stood ready to take "immediate" action to stabilise markets should it be necessary.

Risky strategy

The objective of the price cap was to find a price that restricts Russian oil revenue without prompting Moscow to cut back on production and curb global supply, thus driving prices higher for western consumers.

It's a risky strategy, though. Russia could choose to restrict output to try to raise global prices and sell the more expensive oil via its own routes that means it doesn't have to rely on European or G7 country shipping companies that are subject to the $60 dollar cap.

Limited supply could result in a dramatic price spike, wiping out months of easement in the price of oil.

"Over the last six-months, Brent crude has shed nearly 25%," Victoria Scholar pointed out.

She cautioned that the past week's developments had "reinvigorated the crude bulls", particularly those who have been warning that years of under-investment would eventually catch up with the market.

The way ahead looks like it could be dictated by a playoff between supply constraints boosting prices and bearish sentiment around an economic slowdown dragging them back down.

Oil price volatility looks like it will be here for at least the short to medium term.

The game of roulette could continue on the forecourts for a while yet.