The European Commission approved on July 10th, 2015, the largest Romanian operational program of the 2014 – 2020 budgetary period namely Large Investments (LIOP) with a non-reimbursable European contribution of approx. 9.4 billion Euro. This program addresses several development priorities of Romania as highlighted below: Transport infrastructure – allocated 5.1 mld. Euro (6.8 mld. Euro […]
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Historical gasoline and diesel prices are cheaper now than 10 years ago. This low price may not be a lasting effect. The month of December 2014 brought, for the first time after four years, a gasoline price below the psychological threshold of 5 lei/liter. Even though, as we will further point out, that this low price may not be a lasting effect. In addition, last year was the period during which a number of major fluctuations regarding fuels prices at pump were registered. After the rise, starting from 1st of January 2014, of excise duties applied for these combustibles, the same year in April a 7 cents/liter special excise duty was further introduced (a tax theoretically intended for highways construction), consequently, during that month, the gasoline and diesel fuel registered a record value for Romania, of over 6 lei/liter. The beginning of 2015 brought again a major change for fuels prices at pump, but in a positive way for consumers, thus, combustible prices fell even below 5 lei/liter. At a first glance, this positive record for fuels market consumers within Romania may be interpreted as a direct and exclusive consequence of barrel oil price reduction on international markets, but given that the raw material has a low share in the price of a liter of fuel, the questions raised are firstly if indeed this reflex may be attributed only due to the lower oil price and whether, in the context of a further decrease tendency, fuels prices will be mantained or will keep follow their downward trend during next period. In order to attempt an answer, it is worth mentioning that the price of a liter of fuel comprises four components: the cost of raw material, company’s costs with transport, distribution and sale to consumers, excise duties and VAT. Only excise duties and VAT are around 55-60% of the price, while the other two components have approximately equal shares of 15-25%. A comparative analysis on the evolution over the last 10 years of both annual average fuels prices on local market and annual average barrel quotation on international markets, reveals an apparently direct influence of oil barrel quotation on fuels pump prices within Romania, as it is designed in the charts below. However, in order to interpret these evolutions, must be considered the fact that oil price movements in one way or another are heavily blurred by the low share this component have in final fuels prices. Basically, most of international oil price reduction is canceled by the high levels of excise duties and VAT in fuels prices. Even if from this comparative analysis on prices evolution between oil barrel and fuels at pump within Romania, might be established a direct correlation, however, a closer review leads to conclusion that the sharp decline of oil price registered in 2009 was not reflected to a same extent as a sharp decline of fuels prices at pump. Also, may be noticed that, despite price fluctuations, the actual value of oil barrel quotation as well as those recorded in the past ussualy didn’t have a significant impact on the annual average prices of fuels, their value recording a steady ascendancy, discontinued in a small extent in 2009. Moreover, since the other three components of the fuels prices were constantly increasing over the last 10 years (particularly excise duties which rised in two rounds only in 2014, but also VAT which increased by 5 percentage points from the 1st January 2010 reaching 24%) and the raw material price has the lowest share, a reduction of fuels prices with more than 20% at pump in the last 2 months can not be justified only by a decrease of barrel quotation on international markets. Thus, we can conclude that the less than 5 lei/liter positive record values of the fuel prices for consumers (even 4.5 lei/liter for gasoline, respectively 4.95 lei/liter for diesel fuel in some areas of the country) registered at the beginning of 2015, may only be temporary fluctuations, especially given that the fuels prices trend analysis on the past 10 years reveals an upward tendency at national level, so that a price increasement for gasoline and diesel is possible anytime in the second part of 2015. After a comparative analysis of combustible prices, by inflation adjustment of consumer price indices, a possible fuels prices rise is also reflected as being probable in the second half of the year. Thus, the result shows that with an inflation rate of 93% over the last 10 years, starting in 2004 from an average price of 2.54 lei/liter for gasoline, respectively 2.40 lei/liter for diesel fuel, the 2014 annual average price of gasoline in constant values would be about 4.90 lei/liter, respectively 4,64 lei/liter for diesel fuel, while the displayed price reached even a minimum of 4.5 lei/liter for gasoline, which emphasizes that the evolution of gasoline price was below the inflation rate calculated for the last decade. As a result, this minimum price may represent only a temporary setback that will be offset by a reversal trend of fuels prices over the current year, particularly during the summer months.
Arete Management Consulting SRL
Tel: +40 (0) 21 313 9376
Fax: +40 (0) 21 313 9376
Address: Vasile Lascăr 5-7, sector 2, Bucureşti, România