Fuel Price Cap: Cheap Fuel May Come, Empty Gas Stations Should Not
The question is no longer whether the government will intervene in fuel prices, but how it can prevent negative side effects of the measures taken in the interest of drivers.
Based on preliminary reports, the government will make a decision on Wednesday that will result in cheaper fuel. Today, the price for a liter of gasoline remains on average at 650 forints, and diesel has dropped by 8 forints to 639 forints, according to Holtankoljak.
THIS IS NOT A HEALTHY FUEL MARKET
Drivers obviously welcome the promised government intervention, hoping that the measure will not simultaneously force further supply-restricting measures, or seemingly independent events that also limit supply. During the price cap period of 2021–22, there were plenty of such instances:
* the government limited the circle of those eligible to refuel,
* set an upper limit on the amount that could be refueled,
* maintenance and repairs were ongoing at the Százhalombatta refinery (as they are now),
* distributors themselves were forced to introduce quantity limits,
* technical problems occurred in additional European refineries,
* domestic wholesalers greatly reduced, or even stopped their fuel imports.
As a result, supply diminished, and the situation was worsened by panic buying at the end of 2021. However, those who had access to fuel only had to pay 480 forints per liter, while prices were assaulting the 800 forints mark.
FUEL TRADE UNHEALTHILY RESTRUCTURED
But this came at a high cost. Since the retail and wholesale prices of gasoline and diesel were the same, the retailers' margin disappeared. The market's stronger, bigger players endured this by relying on their reserves, but the smaller ones were brought to the brink of impossibility.
As a further company-level consequence, the national sales structure rearranged at the expense of small, so-called white pumps. It no longer made sense for the motorist to visit the smaller cheaper pump where they had fueled before the official price period, as the price was the same everywhere. Price competition ceased. During this period, therefore, the larger branded chains gained new customers but operated at a loss according to their reports.
Although problematic, the dismantling of the price cap was eventually rebuilt.
A MIDDLE-WAY SOLUTION IS NEEDED
The government hardly wants to repeat these occurrences. Yet it cannot set a lower price cap without also ensuring the continued supply to domestic motorists. The problem threatening market disorder remains even if the government does not cap the prices of gasoline and diesel but chooses another tool. This possibility was hinted at last Friday by Minister of Economic Development Márton Nagy, highlighting the reduction of margins. Yet, this would also be a drastic intervention in market processes. This was laid out by the Ministry of Economic Development in its Friday morning statement, emphasizing how significant fuel purchases are in household expenditures, referring to unspecified survey results.
Therefore, a decision must be made that will meaningfully make fuel less expensive without discouraging distributors from selling and, moreover, may even expedite the maintenance of MOL's refinery.
TAXES STILL MATTER
Of course, the retailers have their response: the government should reduce taxes on the affected products! There is indeed ample opportunity for this, even though the tax content of domestic fuels is in the middle range compared to the region. However, it could also be argued that there are reserves in the fuel stations' margins, specifically in terms of operating costs.
In this case, the price of crude oil is an out-of-competition factor since, although it fundamentally affects the prices of fuels, its impact is the same in countries where gasoline and diesel are cheaper. Moreover, the Hungarian government cannot influence the world market price of oil. However, the currently expensive forint/dollar and forint/euro exchange rates are also factors within its influence.
Translation:
Translated by AI
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