How high can fuel prices rise?

A significant rise in the price of a barrel will lead to an increase in prices at the gas station. But since some of the taxes are fixed, their impact is disproportionate to the rise in prices.

After inflation, a supply shock. Russia is gradually disconnected from the economic world by the sanctions imposed by the West in response to its offensive in Ukraine. For the world’s second-largest oil exporter, this is making it harder to trade oil, in part because many Western groups are leaving the country, such as Shell and BP.

The consequence of these geopolitical and financial uncertainties is that the price of a barrel is skyrocketing. On March 3, the price of Brent crude hit $118 after breaking above $110 a day earlier. And analysts point to a likely increase that could end up at $150, $180, or even $200.

As such, distributors will have to translate crude oil prices into consumer prices at the gas station, as confirmed by Dominique Schoelscher, CEO of Système U, guest BFM Business :

“Seven days after the trigger, there is a shock from the price of fuel, we buy it for ten cents more. We will not take an additional margin, but we will have to transfer this purchase price further, ”summed up the distributor.

A few days ago, a liter of diesel fuel cost 1.74 euros, and unleaded 95 – 1.80 euros. This is 20 kopecks more than at the beginning of the year.

One third of the selling price

How big is the risk of higher fuel prices after mid-April (purchase of crude oil produced in the Persian Gulf is made 45 days before sale) at the stations? To evaluate it, we must return to the composition of the fuel price.

The price of diamonds is only a fraction of the price, about a third. The rest comes from processing and transportation costs, including a markup (about 10% of the price), and, above all, two taxes: the domestic energy consumption tax (NTVEP) and VAT, which is generally applied at a rate of 20%, including TICPE . The latter is nearly 70 cents per liter for unleaded petrol and 60 cents for diesel.

The fact that the main tax on fuel is flat means in practice that an increase in the price of a barrel is accompanied by a smaller increase in the price of fuel: a third of the price per liter depends on the price of crude oil, which increases only a part of the VAT (not that on TICPE) .

Thus, since the beginning of the year, the price of Brent crude has grown by about 24.4%, rising from $79.5 to $98.9; while the price of diesel fuel increased by 9.6%, and unleaded 95 by 8%. Or between a third and a half barrel height.

With a barrel price of $118, as it is now, the price of fuel could rise to 1.87 euros for diesel and 1.91 euros for unleaded gasoline. In the case of Brent oil at $150, gas station prices would approach 2.20 euros.

Impossible compensation with Russian oil

But other factors can also affect the price of gasoline: in particular, this concerns the parity of the dollar and the euro. France buys its oil in dollars, and the euro has been collapsing against the US currency for months. One euro was worth $1.22 in May 2021, at the end of February it is only $1.11.

Moreover, the price of crude oil is still difficult to predict: apart from possible sanctions, it is the level of demand (and, therefore, the sensitivity of consumers to its increase) that will determine its price, and with it the price of fuel.

What remains certain, as analyzed by Alexander Andlauer, financial analyst at Kpler, guest good morning business this Thursday, it is Russia that will sell less due to lack of demand:

“This is the expectation of possible sanctions that will come on Russian oil. It is also a matter of risk, insurance, today oilmen no longer want to buy Russian oil.”

No country can make up for the four million barrels that Moscow sells each day at prices lower than other oil, such as US, Emirati or Saudi oil. Thus, US initiatives to use strategic reserves will not be enough to stop, at least in the coming weeks, the rise in oil prices, and hence fuel prices.