Why do fuel prices continue to rise and diesel accelerates at a faster rate?

2023-09-22 02:34:08

While the European Union struggles to control inflation with its tenth increase in interest rates, the rise in fuel prices becomes its main enemy. This item was one of the main drivers of inflation in Spain in August, becoming more expensive by 7.2% compared to the decrease experienced on the same dates in 2022. In September the upward trend in fuels continues and threatens to shoot up even more the price of food – which costs 10.5% more year-on-year – due to the increase in transportation costs, warned the Organization of Consumers and Users (OCU).

Specifically, fuel prices have risen for 11 consecutive weeks, a period in which gasoline has become more expensive by 9.91% and diesel has risen by 15.91%. According to data from the last week (from September 12 to 18) recorded by the EU Oil Bulletin, gasoline rose 0.92% compared to the previous week, to stand at 1.751 euros per liter, its maximum value. so far in 2023 and the highest since the end of July 2022, taking into account the 20 cent discount in force then. Meanwhile, diesel grew by 2.08%, its biggest increase in two months, to reach 1.668 euros per liter, a level it had not seen since the beginning of February.

With these new increases, the price of both fuels is consolidated widely above the levels at which it was before the outbreak of the war in Ukraine due to the Russian invasion, which began on February 24, 2022 and which, in the case for diesel, it was 1,479 euros per liter, and, for gasoline, 1,594 euros per liter. However, both fuels remain far from the highs they reached around a year ago, when in July gasoline reached 2,141 euros and diesel 2.1 euros.

This upward spiral in fuel prices is driven by the increase in crude oil prices and the international prices of already refined products, gasoline and diesel, on which the cost at the pump depends and which has been going on for several weeks. upward. In this context, yesterday the barrel of Brent, a reference in Europe, was trading at $92.55, while the American Texas barrel was trading at around $88.61.

Why do these increases occur? On the one hand, OPEC and Russia have begun to comply to a greater extent with the production cut agreements they already had (deficit of 3 million barrels per day) and, on the other hand, Saudi Arabia and Russia, the second and third largest global producers of oil, have approved additional cuts in their crude oil exports unilaterally until the end of the year, explains the Spanish Association of Petroleum Products Operators (AOP). Specifically, Russia has announced a voluntary additional reduction in supply to world markets by 300,000 barrels per day until the end of next December. For its part, Saudi Arabia extends the million barrel reduction until the end of the year, after it was announced in July that it would be extended until September. Thus, its production will be about 9 million barrels per day for the remainder of 2023.

Furthermore, while there was a cut in supply, demand has skyrocketed. The International Energy Agency reported in June the record demand for oil (103 million barrels per day) mainly due to increased air travel, greater use of oil in energy generation and greater activity in the Chinese petrochemical industry.

These factors have raised the price of fuel and, to a greater extent, that of diesel. While gasoline is consumed more in summer, diesel is more in demand in winter because it is also used for heating. Therefore, markets may already be anticipating this increase in demand due to lower temperatures, says the AOP. It should be remembered that in 2022, after Russia’s invasion of Ukraine, diesel rose more than gasoline because the markets anticipated a shortage of this product, since Russia is not only a major exporter of crude oil but also diesel.

With current prices – which include taxes, logistics and marketing costs and the gross cost of the wholesaler -, filling an average 55-liter tank of gasoline costs about 96.30 euros, 13.36 more than the 82.94 euros that it cost in the same period of 2022. Meanwhile, a tank of diesel amounts to 91.74 euros, compared to 91.68 euros a year ago, that is, six cents more.