Factors affecting retail fuel prices
Final prices of petrol and diesel in the Czech Republic (and elsewhere) are affected by market and administrative factors. The market factors include the dollar price of oil, the koruna dollar exchange rate, refining, distribution and marketing costs, and profits of refineries, transporters and retailers. Theadministrative factors include excise duty and VAT (which is levied on the price including excise duty) and indirectly also the tightening of upper limits on the content of harmful substances, the raising of the required minimum proportions of bio-components, and the price of CO2 emissions in oil processing. Seasonal swings in demand/consumption are also relevant to the price of petrol. In the Czech Republic the seasonal effect for diesel prices is smaller, as a large proportion of diesel is consumed in freight and passenger transport, where consumption is spread more evenly (unlike in countries where light fuel oils are also largely used for heating). On the other hand, the price of diesel is more closely connected with the phase of the business cycle because of freight transport.
From the perspective of the vertical processing chain, we can divide the prices of petrol and diesel oil into individual components, namely the price of crude oil, gross margins of refineries and retailers (including distributors) and taxation (see Chart 1).
The minimum excise duty is determined on the basis of Council Directive 2003/96/EC of October 2003 and amounts to EUR 0.359 a litre for unleaded petrol and EUR 0.330 a litre for diesel. However, actual excise duty is higher in most EU countries. In the Czech Republic, excise duty was last changed with effect from 1 January 2010, when it was increased to CZK 12.84 a litre for Natural 95 petrol and CZK 10.95 a litre for diesel. As the koruna appreciates/depreciates, excise duty increases/decreases in euro terms. In March 2012, taxes accounted for 51.5% of the price of Natural 95 petrol and 46.2% of the price of diesel.
Refineries’ gross margins (the difference between input and output prices) are the smallest part of the final price. Since 2010 they have mostly fluctuated between 0.5% and 3.5% for petrol and between 3.0% and 6.5% for diesel. The price at which European refineries sell their products to customers is universally governed by the price on the Rotterdam commodity exchange. Although there has been much talk recently of refinery closures and subsequent upward pressure on prices, especially for petrol, our calculations do not currently lend too much support to this hypothesis. European refineries are facing increasing competition from modern Asian refineries and only those with sufficient processing capacity and sophisticated technology (enabling them to refine oil of inferior quality) are succeeding. Loss-making plants are gradually being closed down. However, refinery margins are showing no dramatic growth (see Charts 2 and 3).
The share of transporters and retailers in the final price has been fluctuating between 7% and 12% over the last two years. However, gross margins have been virtually flat. The koruna price of oil is therefore clearly the biggest factor affecting the level and volatility of fuel prices in the Czech Republic. It is influenced by world oil prices and the koruna dollar exchange rate. These two factors usually partially offset each other, which means that the koruna price of oil is less volatile than the dollar price. In early 2012, however, the price of oil increased while the dollar was strengthening (see Chart III.7.7). This led to a rise in domestic prices of fuels to historical highs.
Chart 1 (BOX) Diesel oil price factors
The oil price is the main factor driving the retail price of diesel oil
(CZK/litre; source: Bloomberg, CZSO, CNB calculation)
Chart 2 (BOX) Gross margins on Natural 95 petrol
Refineries' gross margins increased at the start of 2012, while retail margins have long been comparatively stable
(CZK/litre; seasonally adjusted; source: Bloomberg, CNB calculation)
Chart 3 (BOX) Gross margins on motor diesel oil
Gross margins on motor diesel oil are higher than those on petrol
(CZK/litre; seasonally adjusted; source: Bloomberg, CNB calculation)
