Even cheaper gas? Forget about it [CINKCIARZ.PL ANALYST'S OPINION]

Jan 13, 2016 3:38 PM|Conotoxia.com

Over the last two months the price of diesel expressed in the PLN decreased by 35% and during past 6 months – by almost 50%. It is the lowest level for almost 12 years and costs currently 0.99 PLN per litre. Unleaded petrol is even cheaper. It costs 0.90 PLN per litre. Is there a chance to pay much less at the petrol stations? Opinion of Marcin Lipka, Cinkciarz.pl analyst.

Currently the situation on oil market is in the centre of attention. Its price is now within the limits of 30 USD per barrel (0.79 PLN per litre). However, it is worth noticing that the news from the petrol market are more significant for the drivers. Theoretically, these news should be remarkable. Due to a warm winter in the northern hemisphere, the prices of diesel in Europe and the USA are the lowest for 12 years.

The price of diesel on the ARA market (Amsterdam-Rotterdam-Antwerp), which is an index for prices at the European refineries, is also at its record pits. It costs 0.99 PLN per litre. This is the lowest price since April 2004. Moreover, at the beginning of November it costed 1.55 PLN per litre, and 6 months ago 1.9 PLN per litre.

The similar situation is observed on the market of unleaded 95 petrol. In the middle of July 2015 it was evaluated at 2.05-2.10 PLN per litre on the ARA market. Currently it is only 0.90 PLN per litre. Thus a question – why is the cost of petrol in Poland still around 4 PLN per litre?

What are we paying for? The analyst’s calculations

The case should theoretically be simple. Unleaded petrol costs 0.90 PLN per litre. When adding to this amount the excise (1.54 PLN), petrol fee (0.13 PLN) and recently introduced backup fee (approximately 0.04 PLN per litre), we will receive 2.61 PLN per litre net. To this result we should add the average retail margin (according to the Polish Organisation of Oil Industry and Trade data from 2014 it is 0.16 PLN per litre), and we get 2.77 PLN per litre. In the end, we still need to add the VAT (23%), and the average level of the final retail price should be 3.41 PLN per litre.

However, we have deliberately skipped two factors – the wholesale margin, and the matter of bioethanol supplement. Biocomponents are almost three times more expensive than completed petrol. One litre costs approximately 2.5 PLN. Unleaded petrol contains 5% of it. This means that it increases the price of completed petrol by approximately 0.08 PLN. One litre if this mixture costs 2.85 PLN without the VAT, and 3.50 PLN including the VAT. However, this is still much less than the average price of unleaded 95 petrol at the petrol stations. According to the recent data from the European Commission, on January 4th 2015 it was at 4.15 PLN per litre.

The similar situation concerns diesel. To the price of one litre of diesel (0.99 PLN) we need to add 1.17 PLN of excise, 0.28 PLN of petrol fee, 0.04 PLN of backup fee, and also 0.16 PLN of the average retail margin (according to the Polish Organisation of Oil Industry and Trade data from 2014). After adding all these factors, we get the result of 2.67 PLN net (3.28 PLN gross).

Biocomponent supplement in the completed diesel is by 7% bigger than in the case of petrol. Also the fatty esters themselves are more expensive (approximately 2.70 PLN per litre). This shows that the completed petrol costs by 0.12 PLN more than pure diesel, and it increases its net costs from 2.67 PLN to 2.79 PLN (in the case of gross costs it is from 3.28 PLN to 3.43 PLN). However, the average cost in Poland is still significantly higher and according to the January's report of the European Commission it is 3.99 PLN.

On January 12th, the leading Polish wholesale dealers were selling unleaded 95 petrol for the average price (not including taxes) of 1.57 PLN per litre. Let us remind that the price on the ARA market is 0.90 PLN. Thus the difference is 0.67 PLN, and during the past 5 years (until March 2015) it was approximately 0.25-0.30 PLN. Due to an increase in prices of biopetrols the difference between wholesale and the ARA can be by a few pennies bigger than in the past years. Even though, keeping it above 0.40 PLN is difficult to explain. It is worth noticing that due to the necessity of adding the VAT, higher wholesale cost of unleaded petrol in the range of 0.25-0.35 PLN translate to a higher by approximately 0.30-0.40 PLN retail price.

Situation on the diesel market looks similar, although the scale of disturbance is smaller here. The average wholesale price per one litre (without taxes) is 1.5 PLN. On the other hand, the ARA costs 0.99 PLN. During the past five years the difference between the ARA and diesel was in the range of 0.25-0.30 PLN. However, it began to increase at the end of 2014. Currently the monthly average is within the limits of approximately 0.45-0.50 PLN. A part of this increase can be explained by a 7% share of biopetrol, which is currently almost three times more expensive than diesel without supplements. Thus, we need to come to a conclusion that despite paying approximately 0.10 PLN more in comparison to multi-year average for diesel, it is still evaluated closer to the ARA market conditions than unleaded 95 fuel.

A significant decrease in prices of petrol is impossible

Considering that the above dependencies will not change, there is practically no chance for paying significantly less than 4 PLN per one litre of unleaded petrol. The optimistic version assumes the prices at the majority of petrol stations at approximately 3.80-4.00 per litre. This is of course true when assuming that the price on the ARA market will remain on the level of 0.90 PLN. Thus, we can forget about the prices going below 3.50 per litre. Unless somebody expects a depreciation of the Brent oil below 15 USD per barrel (approximately 0.38 PLN per litre), and cost of petrol on the ARA market on the level of 0.50 PLN per litre.

We cannot be much more optimistic in the matter of diesel. If it remains below 1 PLN per litre on the ARA market, its average price at petrol stations will be approximately 3.60-3.80 PLN. However, just like in the case of petrol it is extremely unlikely that the average price of diesel in Poland would ever go below 3.30 PLN per litre, if the above mentioned dependencies are kept.

Jan 13, 2016 3:38 PM|Conotoxia.com

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