Diesel and gasoline prices will have this Monday one of the largest increases everreflecting the spike in oil and refined product prices last week, under pressure from the war in Ukraine and uncertainty about the ability (and willingness) of major oil product producers to adjust their production volumes to compensate for possible boycotts of hydrocarbons from Russia.
Since this uncertainty on the world map will cost Portuguese motorists more (from this Monday), it is more difficult to predict how long prices will remain at the current level and if they can go even further.
But it is possible, and with data from sources such as the Directorate General of Energy and Geology (DGEG), the European Commission and Apetro – Portuguese Association of Petroleum Companies, to look at what we pay for the gasoline and diesel, making an “X-ray” at these petroleum products. What do we pay when we pay for a liter of fuel? Have the prices at the pump reflected the evolution of the cost of oil? Does tax pressure explain the increase in fuel prices? And how does Portugal compare to the rest of Europe?
Let’s start with the composition of the price: yes, more than half of what we pay for gasoline is taxes, and almost half of the cost of diesel at the pump is taxes.
But it is worth going back to the evolution of prices. We pay a record bill for petrol and diesel. But a trip through the last few years shows that it is not true that fuel prices are only going up.
Although since 2015 the trend has been increasing, the values of sales to the public vary from week to week. Over the past seven years, diesel has reached its lowest point in February 2016, at 1.01 euro per liter, and petrol has reached its lowest point (of this period under review) in April 2020, at 1.25 euros per litre.
The prices of gasoline and diesel for the end customer are updated weekly in Portugal, as gas companies tend to follow the evolution of the international price of refined products (gasoline and diesel), which, in turn, also reflects fluctuations in oil, although not always in the same way (since the refining sector can sometimes operate under different constraints than at the start of the value chain, in oil exploration and production).
And how has the price of oil evolved over the past seven years? The data on the price of Brent (oil which is a reference on the European markets) show that during this period this raw material was very volatile, with more pronounced falls and rises than those observed in the graph above. , relating to retail prices.
There is a simple explanation for the fact that variations in the price of oil are much more accentuated than those of petrol and diesel which are sold to the end customer: the raw material only enters part of the composition of the price sales to the public (most of which are taxes, mostly ISP, a fixed amount per litre), so that a certain percentage change in Brent or refined product prices will cause smaller changes at the station- service.
And how have the taxes we pay on each of the fuels changed in recent years? An analysis of each of the products, based on data from the General Directorate of Energy and Geology (DGEG), shows that most of the final price increase in Portugal in recent years was due to the increase oil and refined products, and only a small part results from the increase in the tax on petroleum products (ISP) and the carbon tax.
Gasoline 95 went from 1.49 euros per liter on April 20, 2015 to 1.83 euros per liter on February 28, 2022. There was an increase of 34 cents, but over this period the FAI and other taxes ( other than VAT) increased by only 3 cents per liter (from 61.8 to 64.8 cents per litre), according to DGEG data.
But then it must be taken into account that the collection of state taxes also increased during this period because when the price of fuel increases, the public coffers also return more VAT.
In diesel, the situation is similar: most of the increase in retail price comes from the increase in the price of fuel, and not from the increase in the ISP.
From April 20, 2015 to February 28, 2022, diesel went from 1.23 euros to 1.68 euros per litre. That’s 45 cents of aggravation. According to the DGEG, during this period, the FAI and associated fees have increased by approximately 10 cents per litre, from 40.2 cents in 2015 to 50.3 cents today. In other words: the increase in the tax burden has contributed to the increase in the cost of diesel at the pump, but it is not the main explanation.
Most of the escalation is in the pre-tax price and will include increased raw materials and costs in the fuel business value chain.
So far we have only looked at Portugal (and the price of Brent), but what is the relative position of our country compared to other European Union (EU) member states? Data from the European Commission’s “Weekly Oil Bulletin” shows that Portugal has the eighth most expensive gasoline in the EU.
We pay more for gasoline than the Spaniards, it’s true, but less than the Greeks, Italians, Germans, Dutch, Swedes and Finns. It is mainly in Eastern Europe that the cheapest gasoline is sold.
And in diesel? Well, here we have the tenth highest price in the EU, behind Italy, Ireland, France, Belgium, the Netherlands, Germany, Denmark, Sweden and Finland.