Fuels drive inflation in Poland – Urszula Cieślak and Leszek Wiwała comment

According to preliminary data from the Central Statistical Office, fuel prices increased by 30% in July. Every year. We also saw double-digit hikes in June. Diesel oil went up by 26.4 percent, and gasoline by 29 percent.

President of the Polish Organization of Oil Industry and Trade, Leszek Wiwała, points out that four basic factors are responsible for this: oil prices in world markets, the zloty exchange rate against the US dollar, fiscal burdens and costs related to the increasing number of obligations of fuel companies.

– The first two factors, which are collectively referred to as the so-called import parity, i.e. the reference of Polish prices to the international quotations of crude oil and finished fuels and the zloty exchange rate to the US dollar, had the greatest impact on the increase in prices at Polish stations – explains Wiwała. As he adds, among the fiscal factors influencing the increase in fuel prices, “one should mention the collection of retail sales tax, which, contrary to the original intentions of the Ministry of Finance, was also extended to fuel”.

– In addition, we had to deal with an increase in labor costs, costs of energy, gas and water – elements used in the production of fuels. The prices of biocomponents used for fuel blending are also rising (mixing fuel components – ed.). The fuel industry must also bear increasing costs related to environmental protection and the energy transformation being prepared, notes the president of POPiHN.

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We will probably observe double-digit fuel price increases in annual terms in the GUS inflation data also in the coming months. – In fact, if the prices remain at the current level, above PLN 5.50, we can talk about year-on-year increases by the middle of next year – says Urszula Cieślak from the Reflex Brokerage House. According to him, if this level of fuel prices would be maintained at the end of December, then, for example, diesel prices will continue to be 20% higher. Every year.

– It may turn out that only in the second quarter of next year we will talk about the fact that the situation will stop and prices will not be higher year on year – Cieślak points out.

On the other hand, the chances of sharp cuts are slim. – Prices may slow down or may fall, but it seems that the chance of a PLN 1 drop to catch up with last December’s level is rather unrealistic. There would have to be a very sharp reduction in demand again, it would probably happen when there were blockages – believes analyst BM Reflex.

According to the president of the Polish Organization of Oil Industry and Trade, we should not observe any major price fluctuations at petrol stations in the near future. – If the situation does not change radically – and this is possible in the fuel industry overnight – prices at petrol stations should not change much – says Wiwała.

Does all this mean that drivers should be afraid of exceeding the level of PLN 6 per liter of 95 lead-free petrol or diesel fuel? – It seems to me that we are not likely to be in danger of exceeding PLN 6. Of course, there will be stations where we will approach the level of PLN 5.80-5.90 per liter of 95-octane petrol. Rather, it will not be that such levels will be permanently visible at all stations – Cieślak forecasts.

Meanwhile, the president of POPiHN points out that “if the fourth wave of COVID-19 could be prevented, fuel consumption would probably continue to grow”. – It could cause a further increase in prices. However, this scenario is not very realistic. According to the announcements of the Ministry of Health, we will face economic restrictions, which will have an impact on the decline in fuel demand, emphasizes Leszek Wiwała.

The forecasts of the industry portal e-petrol show that next week the average price of 95 lead-free petrol should be in the range of PLN 5.70-5.81 per liter. For 98-octane petrol, the forecast average price is in the range of 5.94-6.05 PLN per liter. Diesel fuel is to cost PLN 5.39-5.50 per liter. The forecast for autogas is PLN 2.62-2.70 per liter.

In recent weeks, crude oil prices have risen to levels not seen for several years. Currently, the prices of Brent crude oil quoted on the London Stock Exchange and WTI crude oil in New York are still at high levels, around $ 70 a barrel. Meanwhile, in mid-July the ministers of the Organization of Petroleum Exporting Countries and its allies (OPEC +) decided to increase oil production from August. The number of barrels will grow by 400,000 each month by the end of this year.

– The current loosening of production limits in the OPEC + countries, but also the increase in production in the US from shale deposits, should stabilize the markets and the quotations in the range of USD 70 per barrel should be observed in a longer perspective – believes Leszek Wiwała. However, as he emphasizes, an unpredictable factor is the development of the pandemic and possible further restrictions on socio-economic activity.

– There is an expectation that the demand for oil and fuels will be maintained, although it is counterbalanced by the uncertainty about the development of the next wave of the pandemic and how economies will behave then. But it seems that even if there are restrictions, they will not in any way resemble those lockdowns that we dealt with in the spring and autumn of last year – says Urszula Cieślak.

– Such fluctuations on the demand side are no longer expected and therefore, OPEC +’s decision to increase production by 400k barrels is cautious in response to the uncertainty we are dealing with. Because, of course, this increase in crude oil production could take place at a greater level, but if the demand was limited, we would probably see a decline in raw material prices again – he adds. – It would be beneficial for us, the drivers, but it seems that the producers are trying to keep the prices around USD 70-75 per barrel and it should be a success. This also guarantees us that there should not be such sharp increases in the domestic market as we have dealt with in recent weeks. It seems that the worst is behind us, that is, rapid increases in fuel prices – claims Cieślak.

In addition to the uncertainty surrounding the COVID-19 pandemic, experts also highlighted unforeseen events, such as hurricanes, which may also affect crude oil prices. – It should be remembered that one drone attack in the Red Sea or the OPEC decision can change the situation diametrically – Wiwa points out.

It should be remembered that when refueling a car, we do not pay only for the raw material from which the fuel is made. The basic components of prices at the stations are the cost of fuel from the refinery plus excise duty, fuel surcharge, VAT and the seller’s margin. The share of the fuel stations themselves in shaping prices is rather small.

– Fuel stations add their retail margin to the net price of the purchased fuel, which is to cover the costs of running a business and generate profit – explains Urszula Cieślak. Thus, Leszek Wiwała notes that “petrol stations may have a slight influence on the price levels”. As he adds, “these margins have been at low levels for many years, making it impossible to maintain the facility only from the sale of fuels”. – Without a shop, small and large gastronomy and the provision of additional services, fuel stations would have to significantly increase fuel prices in order to stay on the market – emphasizes the president of the Polish Organization of Oil Industry and Trade.

POPiHN data shows that the average margin level in the first seven months in the case of EU95 petrol decreased by 46.1 percent. compared to the average of the previous year. An even greater decrease, by 50.7 percent. applies to diesel fuel. In both cases, the share of the margin in the retail price is 2%. On the other hand, in the case of autogas, the margin is lower by 10.4 percent. compared to the average level in 2020. The share in the retail price is 10%.

Cieślak explains that the margin depends on several factors. – Local competition largely determines what fuel prices we have in a given region, i.e. station saturation, consumption level. It is known that if there is a large consumption, the prices may be lower, because there is a higher turnover, and therefore profit can be realized with higher turnover at the station, not necessarily with a high margin – emphasizes the analyst BM Reflex.

As he indicates, the highest margin is at stations near motorways and expressways. – This is also due to the fact that the costs of running a station by an expressway or a motorway, for example due to the costs of lease and fees to the General Directorate for National Roads and Motorways, constitute a large cost element – explains Urszula Cieślak.