Ukrainian gas stations reduce prices: Would gasoline be cheaper?

Author : Olena Holubeva

Source : 112 Ukraine

After increase in fuel prices, which continued from September to January, Ukrainian gas stations have cut the prices
10:30, 15 February 2018

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112 Agency

February 12, Ukraine’s large gas stations WOG and OKKO reduced gasoline prices by 50 kopecks/liter (0,018 USD). “This is the first price reduction since September last year. Since then, the price (for gasoline, - Ed.), taking into account the growth of crude oil stocks and dollar exchange rate, has increased by 6 UAH (0,22 USD), breaking the mark of 30 UAH/liter (1,1 USD) in January," the press service of WOG stated. "On Friday (February 9), we lowered the price by 20 kopecks/liter (0,007 USD), and we plan to decrease the prices," said Serhiy Ostapets, commercial director of Glusco Ukraine. KLO gas station reported about the reduction in the price of imported fuel by 40 kopecks/liter (0,014 USD)and alcohol-gasoline price reduction by 50 kopecks/liter (0,018 USD). BRSM-Nafta has also decreased the prices.

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Against the backdrop of a sharp rise in prices for gasoline, which was observed since September, autogas prices have risen very slightly. Since the middle of December 2017, average retail prices for gasoline have increased insignificantly - by 5%, to 13.37 UAH / liter (0,49 USD), said Artem Kuyun, Consulting Group A-95 expert. According to him, the partial increase in gasoline prices is explained by “turbulence in the currency market observed in December-January.” “The small price growth could be influenced by the small consumption growth that was observed due to the atypical warm weather in this January,” he said.

Thanks to its price, autogas is a cheaper alternative to the gasoline. However, its consumption significantly increases in the winter months due to low temperatures.

In addition, if gasoline is clearly correlated with oil prices (it can reach 20% in the cost structure of gasoline), then liquefied gas correlates with oil to a much lesser extent, said Artem Kuyun: "In the period of the sharpest jump in oil prices in the last three years (up to $ 70 per barrel), the wholesale prices of gas in the world market did not change, so the dynamics of the increase in gasoline and diesel fuel prices were sharper.” Now the price of oil fell to an average of $ 63 per barrel.

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The rise in gasoline prices since was so rapid and noticeable that the authorities could not stay away. Prime Minister Groysman, who instructed the State Fiscal Service and the Antimonopoly Committee to analyze the situation for possible abuses by traders, expressed concern about the situation. "I understand that if the price of oil was $ 55 per barrel and it became $ 70 per barrel, then there was an increase. But how to explain to the people how the price is formed ?" Groysman noted. The prime minister has threatened to "mercilessly punish" the price abuse.

All the representatives of the largest networks, with whom has communicated, assure that the fuel pricing during the price increase of is based exclusively on market factors. "Our price policy is based solely on economic factors and the real market conditions. The fuel price consists of the cost of the resource at the border, taxes, logistics costs, storage, the operation of the filling station, and staff salaries. We regularly provide all the necessary information to the Antimonopoly Committee to confirm the economic feasibility our price," said Serhiy Ostapets, commercial director of Glusco Ukraine.

"Our company operates within the framework of the legal framework. Trust me, as soon as it became possible, we immediately let the price down, as we are interested in lowering it, which primarily increases demand. Ukrainians need to understand what affects fuel prices and what increases this price; there is no any mythical whim of companies, but external factors, since Ukraine is an importer of petroleum products and is almost completely dependent on both world trends and the exchange rate," the WOG press service said.

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"The retail price of fuel in Ukraine is formed this way: the purchase price of fuel, the tax burden, the number of costs arising from the sale of petroleum products (employee wages, utility costs, logistics costs, storage costs of oil products, etc.), the company's profit. The first two factors account for approximately 90% of the retail price of 1 liter of fuel. The significant increase in fuel prices observed since last autumn influenced by these two facts. From the beginning of November 2017 to early February 2018, the price of Brent crude rose from $ 60 / barrel to $ 70 / barrel, or 16.6%, the highest level of oil prices for the last 3 years, while the hryvnia devalued by 6.5%, which further strengthened the effect of rising procurement prices for fuel. During this period, the growth of retail prices in the OKKO network amounted to 13.8% for gasoline A-95, for diesel fuel - 15.1%," said Vasyl Dmytriv, head of OKKO marketing department.

The import resource accounts for up to 85% of the Ukrainian auto fuel market; it is very sensitive to the dollar and euro exchange rate, as well as to oil quotations on the world market, to which the wholesale price is tied, Serhiy Ostapets noted. He stressed that the "current decline in prices in retail is mainly influenced by the exchange rate: from the last decade of January, the dollar sank by about 2 UAH (0,07 USD) and continues to get cheaper. The dynamics of oil products quotations was also favorable: for the last month, the quotes decreased by about 5%," commercial director of Glusco Ukraine assured. “If the trend continues and other factors do not change, we will be able to provide even greater price reduction,” he added.

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The representatives of all the largest networks, with whom we communicated, announced their intention to continue the price reduction provided that the quotations of oil and the dollar rate were maintained or further decreased. "Thanks to the strengthening of the hryvnia exchange rate in February of this year and the reduction of oil quotations, the cost of a liter of fuel at filling stations in Ukraine went down. This temporary phenomenon or medium- / long-term trend largely depends on the stability of the hryvnia exchange rate. If the hryvnia continues to strengthen, the liter of fuel will also decrease," the press service of BRSM-Nafta reported. The company said that "provided that the current exchange rate of the hryvnia and oil quotes are fixed until the end of February, the cost of fuel may still fall by 10-30 kopecks/liter" (0,03 USD).

Plans to "lower the price of all types of gasoline and diesel" were voiced by the WOG press service. "Everything depends on external factors: how much oil will be extracted, what will be the world quotes, how will the national currency behave, etc.," the press service of the gas station noted, recalling the factor of seasonality, which also could soon affect the fuel market: "Usually the demand (for auto fuel, - Ed.) increases in spring and summer, this is the so-called "seasonality of the market." The fuel market is very difficult to predict, two main components are too unstable – the oil and the exchange rate. If hryvnia continues to strengthen, and oil price falls, then the corresponding correlation will be displayed on the stelae," the KLO press service said.

"Now we are seeing trends towards strengthening the hryvnia and lowering oil quotations on world markets. We have already begun to enter the first shipment of petroleum products at a lower price, which allowed to lower the prices for gas stations from February 12. If this trend continues, then with a decrease in expensive balances in warehouses and the receipt of fuel at lower procurement prices, retail prices will decline, we are interested in this no less than our consumers do," says Vasyl Dmytriv, head of OKKO marketing department.

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Experts are more optimistic about the forecasts. "According to our calculations, in the second decade of February, the retail price of A-95 gasoline may decrease by 70 kopecks (0,025 USD)- to an average of 29.75 UAH / liter (1,1 USD). The cost of diesel fuel may drop to 27.50 UAH / liter (1,01 USD). In case of an accelerated decline in oil quotations and the exchange rate, we can expect a faster decline in prices for Ukrainian filling stations," Serhiy Kuiun, director of Consulting Group A-95, wrote on Facebook.

"We can see some prerequisites for a fall in prices for gasoline on average by 50 kopecks/liter (0,01) in the coming week, and by the end of February, it may lose 50-70 kopecks per liter (0,01- 0,02 USD). The fall in prices for light oil products will be more tangible, the price may decrease by at least one hryvnia (per liter), while it is possible that the depreciation may be reflected both on stelae and in more generous terms of shares and loyalty programs," said Artem Kuyun.

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“There is a mistaken impression that fuel price increases are beneficial for fuel stations' networks. In fact, it lower prices are more profitable for us because then the demand grows and sales turnover increases. Every increase in the price is a loss of sales for the company,” Vasyl Dmytriv assured.

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