Over the past six months, we have experienced a change in the mood of global oil markets. At the beginning we were talking about an oversupply of crude due to the economic slowdown. Now we are worried about shortages due to the OPEC cartel's production cuts. This change has triggered a rather sharp 33% increase in oil prices, to USD 96 per barrel. Along with this trend, fuels at filling stations are getting more expensive, but not everywhere. The cheapest fuel in the European Union can now be found in Poland, while the most expensive is in the Netherlands. Let us consider what might be the reason for these differences and what consequences a rigid policy of controlling prices at national level might have.
Prices in Poland create an arbitrage opportunity
For cross-country comparisons, we will use net prices, excluding VAT and customs duties. Comparing final prices, while important from a consumer perspective, is not adequate to assess possible under- or overpricing due to differences in tax regimes.
In Poland, the current price of Eurosuper 95 petrol is EUR 1.31/l. After deduction of taxes and duties, the price is EUR 0.7/l, i.e. as much as 22% less than the average net price in Europe - EUR 0.9/l.
The highest price of Eurosuper 95 petrol at fuel stations can be found in the Netherlands - EUR 2.13/l, but this is determined by national taxes. Interestingly, after deducting them, the most expensive country is Denmark where the net price is 14% higher than the EU average at EUR 1.03/l.
Source: https://energy.ec.europa.eu/data-and-analysis/weekly-oil-bulletin_en
High price differentials for a homogeneous product create the opportunity for so-called price arbitrage, i.e. buying the same product at a lower price and selling it at a higher price. The result can be the creation of shortages, restrictions on access to the commodity and, in the long term, the possibility of a black market in oil. Unfortunately, economic history has repeatedly shown that rigid price regulation leads to market gaps. An example of a country that has recently experienced the effects of price control policies is Hungary, where the price freeze at filling stations ended at the end of last year. The measures to combat the highest inflation in Europe led to the depletion of domestic stocks, which could not be replenished due to unprofitable imports. As a result, Hungary today has the second highest net prices for Eurosuper 95 petrol in Europe - EUR 1.01/l.
Are drastic increases in petrol and diesel prices to be expected in Poland?
According to the latest OPEC report, which we have had the opportunity to write about, we are now facing expectations of increased demand (from Q4 this year) and production cuts by the largest consortium of oil producing countries, OPEC. The natural consequence of these actions seems to be an increase in the price of oil on world markets, and it will then only be a matter of time before the $100 level is exceeded.
At a time when oil prices on world markets are rising by 33 per cent, wholesale fuel prices in Poland have fallen by 6.3 per cent. Poland's largest fuel supplier, the state-owned Orlen Group S.A., explains this by "fighting prices". In its latest communiqué, the company reassures that "fuel deliveries to Orlen stations and to our wholesale customers with whom we have contracts are proceeding without disruption".
Source: Conotoxia, own analysis
It appears that the current "market" fuel price in Poland should be between EUR 1.62 and 1.72/l. However, it is difficult to predict when stocks of this commodity will reach their critical levels and, consequently, when prices may stabilise. Hungary was able to freeze fuel prices for slightly less than 12 months. It seems that Poland can survive a similar period. However, it is important to bear in mind an important event, although not directly related to the market, which is the parliamentary elections in Poland scheduled for 15 October. There is a high probability that the situation in this market may change just after the elections. Nevertheless, a sudden and steep increase in fuel prices, such as we experienced in Hungary after the abolition of maximum prices, should not be expected.
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.02% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
