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Do you have diesel? You have bad luck. Only petrol goes down

7 Nov 2018 13:47|Marcin Lipka

"Petrol prices on the European market fell by 0.40 PLN per litre per month and are at their lowest since April. There is still a chance to reduce petrol prices to 4.7-4.8 PLN per litre at Polish stations in November. However, why is diesel not following these trends and remains close to long-term highs?" explains Marcin Lipka, Conotoxia Senior Analyst.

The prices of unleaded petrol on the ARA (Amsterdam-Rotterdam-Antwerp) market fell by as much as 20% compared to the beginning of October. Currently, a litre of this fuel costs 1.70 PLN excluding retail and wholesale margins, excise duty, fuel duty and VAT.

Similarly, percentage decreases are also observed in the oil market. The Brent barrel fell from 322 PLN to 269 PLN in just over a month. This was primarily due to a record-breaking increase in crude oil production in the United States.

The US floods market with oil

Production of "black gold" in the US increased by 2.1 million barrels per day (b/d) over the year and is now 11.3 million b/d. The United States is currently the world's largest oil producer. Moreover, net imports (the difference between exports and imports) of crude oil and its products fell to 1.2 million barrels at the end of October, according to weekly EIA data. This is the lowest level in at least 30 years. It also means that more oil remains for other countries in the world, which lowers its global price.

There is far less concern in the market due to sanctions against Iran. In October, OPEC's oil production increased significantly, mainly because of Saudi Arabia and Libya. Extraction from Venezuela has also increased slightly. Although this is probably not a constant trend, it helps to reduce oil prices along with other data.

The USA has also allowed leading Iranian oil buyers to continue importing temporarily. This reduces pressure on demand from other oil exporters and encourages downward pressure on prices.

Diesel more expensive than petrol

Owners of diesel vehicles (ON) will not be as lucky. Since the last highs, the price has fallen by only 0.20 PLN, i.e. less than 10%. The relatively high price of diesel is a result of events from a few months ago, as well as the current disturbances.

IEA data shows that in August, diesel stocks in OECD countries in Europe were by 40 million barrels below last year's amount. Besides, in September we had two negative events in Germany. Planned and unplanned production shutdowns in German refineries at some point reached 500,000 b/d, many times exceeding the usual levels. As if that wasn't enough, one of the refineries experienced an explosion and will probably not return to work for the next few months.

Unfortunate coincidence also maintained in October. The level of the Rhine, which is an important fuel transport channel for southeastern Germany and Switzerland, has fallen to the lowest level ever. This made the fuel transport practically impossible by barges. It became necessary to mobilise strategic reserves in Germany and Switzerland.

Insufficient supply and sustained demand resulted in an increase in diesel prices not only in Europe but also in other markets, including the American one. The difference between the price of diesel and petrol in the USA reached 0.50 PLN per litre, which is one of the highest levels in at least 13 years.

In Europe, this difference also amounts to values close to 0.45-50 PLN. Even taking into account the fact that taxes on diesel in Poland are by 0.20 PLN lower than on petrol, diesel in wholesale costs 0.20-25 PLN more than the popular "95" petrol.

Long-term recovery

For a few more weeks, drivers will probably pay significantly more for diesel than for petrol. It should slowly decrease, but there is a risk that by the end of the year it will cost more than 5.00 PLN/litre because the consequences of such a strong disturbance last relatively long.

A much better situation awaits petrol refuellers. The market price of 1.70 PLN per litre should correspond to a retail price of around 4.70-4.80 PLN/litre. Even taking into account the fact that retailers have recently given up margins at high wholesale prices, these values can be seen at the end of November.

7 Nov 2018 13:47|Marcin Lipka

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