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Why fuels do not drop below 1.50 euros nor will they in the coming months

Date: June 7, 2023 Time: 04:28:44

Filling the tank is once again an ordeal for Spanish drivers. The price of gasoline grew by 20% and diesel by 16.7% during the month of January, first without the bonus of 20 cents for refueling that had been in force since April of last year. According to the latest data published at the European level, 95-octane gasoline is paid in Spain at an average of 1.66 euros, while diesel grows to 1.70 euros per liter, accumulating five weeks of continuous increases.

This situation, which further aggravates the inflation crisis that the Spanish economy is experiencing, is likely to spread over the next few weeks and even makes 1.50 euros per liter the usual floor for fuel prices, according to various predictions. experts consulted by La Información. At some gas stations in the center of Spain, the usual fuel prices creep up to 2 euros. This situation is especially observed in provinces in the north of the peninsula, where they are usually higher.

If the experts consulted agree on anything, it is that the two variables that have conditioned the markets over the last year and a half are still absolutely valid. We are talking about international geopolitics and the uncertainty generated by the decisions of the different producing countries: “It is a product that is very sensitive to any situation of instability,” says Manuel Jiménez, president of the National Association of Automatic Service Stations (AESAE).

Prices that go up like a rocket and go down like a feather

This situation could not be understood, in his opinion, without explaining the usual functioning of the Spanish market as the culprit of this rapid rise in the first month of the year. Experts call it the “boom and rocket effect”, and refer to the fact that the market faces rising prices in a very short period of time, while its return to normality takes much longer.

Another variable on which they agree is the effect of the sanctions against Russia in response to the invasion of Ukraine, something that could make fuel suffer. This February 5, the European Union embargo on imports of all kinds of refined products from Russia comes into force, which extends the ban on importing crude oil that has been in force for months. This decision implies limiting the available offer and is incorporated as a new condition to the price.

The general director of the Spanish Confederation of Service Station Employers (CEEES), Nacho Rabadán, points to the existence of a bottleneck in refining as a key to understanding the current situation: “From 2009 to 2022, the refining capacity in Europe it has fallen by 19% at the same time that consumption has risen”. To this is added the “spectacular” drop in average sales per service station, which in 2007 sold 3.5 million liters compared to 1.8 million in 2022, practically half. “If I sell fewer liters, the price has to go up to reach the breakeven point,” he says.

For this reason, he defends that “more service stations does not mean more competition or lower prices. public before taxes and the international price—it has to go up for that service station to cover its expenses.” In this regard, Jiménez (AESAE) emphasizes the lack of competition as a variable that determines the setting of prices in the market: “It is very limited and controlled by an oligopoly, and we all suffer from this as consumers,” he defends.

For Víctor García Nebreda, spokesman for AEESCAM —Association of Service Station Entrepreneurs of the Community of Madrid— the problems with prices in Spain “is quite irrelevant for the purposes of the international market”, since following the usual purchasing system, he believes that the global price of oil is what determines the final cost paid by consumers.

García Nebreda believes that the larger purchases by the countries of Northern and Central Europe are distorting prices, which added to the supply restrictions, cause the price to rise. “Until they are regulated and we are able to replace shipments from Russia, the price of diesel could pick up on a one-off basis,” he says.

The perfect storm comes from China

Juan Carlos Higueras, economist and professor at EAE Business School adds one more variable to the perfect storm: the awakening of China. “Right now the price of a barrel is around 80 dollars, lower than a few months ago, but gasoline has not just gone down. The conflict with Russia may mean that there are fewer barrels on the market, but if China wakes up and starts to grow, it is going to need and it is going to buy much more oil than it already consumes, and that is going to make the price of oil go up”. In his opinion, the only option for the figures to relax is for the euro to strengthen again against the dollar – the reference currency in hydrocarbon purchases – something that would benefit the European economies.

In Jiménez’s opinion, the rise in prices that has been registered in Spain does not yet include the effect of the Russian embargo. “As it is a volatile market and it adjusts quickly, the increases will not occur until the cuts materialize. Rabadán does not believe that this price increase can be noticed as of Sunday: “Europe is importing Russian diesel at full speed, at a rhythm of 600,000 barrels per day since January, and we will not notice it in the short term because there is no room for more in the warehouses”, he defends.

This situation is not fixed either, since factors such as the weather or demand from China can change this situation. “There are no alternative suppliers. With oil it is easier, but with the refined product, not so much. Now refineries are coming into service in Kuwait, but they do not have enough capacity to cover the extra demand,” explains the CEEES spokesman.

Will the prices go down at some point?

“That in the short term we see diesel at 1.50 euros I do not see it very feasible. The world was stopped for a year, demand fell and then supply, and starting it up again to supply China or India again is complicated. When the Well, it is the case, the price rises. In the medium term, we may stabilize at the prices we have now or even a little less, but everything will arise from how the war evolves, we will probably stay for a while with the prices we have now, “concludes the spokesman. of the Madrid gasoline stations.

For Higueras, “the normal thing is that in the future it remains around 1.50 euros. The cost of oil represents 50% of the final value of gasoline, but those remainders are distribution margins, refining, taxes… and they also suffer from inflation. It will be difficult for it to come down. It may do so if margins and other variables fall, but the effect of oil on the cost of filling the tank is less and less.” Asked if it would be possible to see prices of 2 euros per liter again, he responded emphatically: “I don’t miss you.”

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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