Polish drivers victims of "rockets and feathers" strategy

05.02.2019 16:17|Marcin Lipka

"The observation of the Polish fuel market over the past few months and scientific research conducted over the last decade confirm the common belief of drivers. Retail fuel prices in Poland are rising rapidly when there are increases in the wholesale market, whereas when there are strong reductions in the global market, they fall very slowly. How can we counteract this situation?" writes Marcin Lipka, Conotoxia Senior Analyst.

Less than a year ago, strong increases in wholesale petrol prices began. On the ARA (Amsterdam-Rotterdam-Antwerp) market, the cost of one litre of fuel increased from about 1.50 PLN to approximately 2.10 PLN. During that period, and practically by the same value, the average cost of refuelling of the popular "95" fuel also increased in Poland. According to the European Commission (EC) data, in mid-March last year its price amounted to 4.58 PLN per litre, and after a month and a half, it reached 5.14 PLN.

The unleaded fuel prices observed on the ARA market from June to the beginning of October 2018 were practically unchanged and mostly ranged from 2.00 to 2.10 PLN/litre. At that time small fluctuations were also evident in Polish retail and ranged from 5.00-5.10 PLN/litre. Price imbalances between the wholesale and retail markets started in the second half of October last year.

Petrol listings on the ARA market fell sharply and reached 1.41 PLN/litre on November 23rd. Since then, i.e. for two and a half months, they have been moving within a rather limited fluctuation range, with an average value of 1.39 PLN/litre.

When wholesale prices were falling sharply, reductions in retail prices were practically invisible for 6 consecutive weeks in Poland. In addition, price drops in retail stopped significantly above the values corresponding to wholesale prices. As a result, since the end of November, the wholesale market has stabilised prices at a level of 0.10 PLN/litre lower than less than a year ago, and in retail it is more than 0.20 PLN/litre higher (according to the EC from January 28th, 4.79 PLN/litre) than in March 2018. This means that for every litre of petrol Poles are overpaying by 0.30 PLN.

Prices grow fast and fall slowly

The imbalances of recent months are worrying fuel consumers. It is worth considering, whether this is a systemic anomaly that has existed for years, or if it is a few months' detachments of fuel prices from reality.

First of all, there is very little research on this subject in the Polish market. In addition, those that appeared mainly drew attention to the dependence of oil prices on retail fuel prices. Unfortunately, this was a serious mistake, as oil in the refining process produces many products, which later benefits from different demand and this translates into unequal levels of stocks. Currently, the global fuel market is flooded with petrol, and it is sometimes quoted even below oil prices in Europe or the USA.

One of the most comprehensive studies covering mainly the relations between the wholesale and retail fuel market is described in the monograph entitled "Asymmetric price adjustments on the fuel market in Poland".

Katarzyna Leszkiewicz-Kedzior from the Department of Models and Econometric Forecasts of the University of Lodz, while researching the dependence of prices from the ARA market with retail prices at Polish petrol stations over a period of 13 years (from 2000 to 2012), proved that increases in the wholesale market are implemented faster and on a larger scale by petrol stations than discounts.

Leszkiewicz-Kedzior writes, "On the other hand, there are clear asymmetric adjustments between domestic wholesale and retail prices, as has been shown for the two most popular fuel types. It should also be stressed that asymmetry at this stage is twofold: on the one hand, it is due to the different speed of adjustment to the long-term path of balance and, on the other hand, to the differences in the strength and timing of short-term adjustment". The researcher also notes that "consumer perceptions about the asymmetric way of setting prices can be strongly empirically confirmed".

Growths like rockets and drops as gentle as a falling feather

As usually, events in Poland are nothing out of the ordinary. Many countries struggle with price cycles called "rockets and feathers". They concern not only fuels but also food (e.g. in the case of fruit or vegetables). But how can they be counteracted?

The answer can be found, for example, in the extensive OECD publication "Competition in Road Fuel". The activities of fuel companies are mainly driven by consumers' lack of information on pricing processes, low bargaining power of drivers in relation to fuel producers or a lack of substitutes for offered products (petrol or diesel is difficult to replace). The bargaining position of consumers may be strengthened by, among other things, their better understanding of prices, which intensifies competition between fuel companies.

In the era of smartphones and easy access to the internet, it seems a good idea for all national petrol stations to publish every change in the price of fuel to the anti-monopoly agency. Such an obligation has already been applied in Germany and Austria after research carried out by local authorities.

As a result, drivers have access to up-to-date fuel prices, which increases competition between companies, so the beneficiaries of these changes are consumers due to access to cheaper fuel. According to the European Commission's data from January 28th this year, retail prices of unleaded petrol and diesel (excluding taxes) are between 0.16 and 0.25 PLN per litre lower in Germany and Austria than in Poland.

See also:

1 Feb 2019 11:32

Abnormally high fuel prices in Poland. It can be changed!

29 Jan 2019 14:23

Prime Minister May changes her strategy. What now for Brexit and the pound?

25 Jan 2019 16:49

Nuclear option against the Maduro regime

22 Jan 2019 10:14

Outstanding results of the Czech labour market

11 Jan 2019 16:21

The beginning of real chaos in Great Britain

8 Jan 2019 12:13

Horrific data from Germany. Will a recession take place?

Attractive exchange rates of 28 currencies

Start chat