Home / Business / Why Fuel Prices Beat Historical Maximum

Why Fuel Prices Beat Historical Maximum

The past period has recorded quite painful developments on the fuel market as the price of a liter of petrol beat the historical maximum. Consequently, regarding the mentioned issue, I have heard a lot of comments and forecasts (another issue is how qualified these forecasts were, who someone was trying to justify the current tendencies).

To put simply, the price of one liter of petrol has exceeded 2.65 GEL. Lobbyists of oil products importer companies and others mention 3 key factors to explain this growth: 1) national currency; 2) growing tariffs on international markets and 3) increased excise rate.

  • National currency: it is true that over the past week the national currency depreciated by 3 points in relation to USD. But could this process really increase fuel prices? Everything seems to be in order. GEL lost 3 positions. Prices on all categories of fuels rose by 3 Tetri on average and the lowest price of Super fuel constituted 2.55 GEL. But what is reality? If we analyze the indicators of the previous month, by mid-August the price of a liter of Super was 2.53 GEL, while in the same period GEL exchange rate against USD was 2.60, that is the same exchange rate as today, however the fuel price remained the same. Then what factors have caused a growth in fuel prices?! Mindful person would say that in that period one barrel was traded for around 65 USD. In this case, why did the companies maintain expensive prices on domestic market before August?!
  • Assertions as if oil prices are growing on international markets does not reflect truth. Healthy trades are recoded on the market and the past week has recorded even price contraction tendency.

As to global tendencies and their effect on the Georgian market: In February the price of a barrel was 59-61 USD. In this period in Georgia the price of one liter of Premium was 2.29 GEL, that is higher price than in May, when the price of barrel was 70 USD. From May to June the price growth continued on oil and consequently, on the Platz and this factor became a ground for fuel price growth in Georgia several times. However,  from the second half of May up to the second half of June, we had extremely decreasing trend on oil prices and the barrel price fell to 64 USD, this change was not positively reflected on domestic prices. Moreover, along with downturn tendency on global market, fuel prices rose in Georgia by 3-5 Tetri.

It should be also noted that in this 3-month period the national currency exchange rate was stable and one dollar could be purchased at about 2.44-2.45.

  • Excise tax rate and its results: There are active assertions that fuel prices increased after excise tax growth, which came into force on January 1. Naturally, the higher excise tax has genuinely affected fuel prices, but this growth was not more than 15% per liter.

As to lowering the excise tax reduction for decreasing fuel price, this mechanism cannot bring long-term and everlasting effect because of the oligopolist and cartel market. Tax reduction in this or that form brings insignificant effect for population and products. If the excise tax is reduced, we will have a single-time reduction in fuel prices and after this these funds will go back to the accounts of companies and this mechanism will not bring real effect in terms of fuel prices.

Paata Bairakhtari Vice President of Association of Young Financiers and Businessmen