Gasoline at its lowest price in two years

  • Gasoline and diesel are lower Tuesday.
  • A liter of Super 95 has not been this inexpensive since July 2011.
  • Lower prices are tied to the euro’s strength versus the dollar.
  • But, there’s no euphoria…

Tuesday, the price of gasoline and fuel oil dropped. The maximum price of a liter of Super 95 is €1.58 at the pump, 4 centimes lower than on Monday. Super 98 has dropped by the same amount, for a maximum price of €1.633. The price of a liter of heating oil dropped to €0.8363 for orders of 2,000 liters or less (-€0.03) and €0.8097 for orders of more than 2,000 liters (-€0.03). That is good news following the drop of the price of a liter of diesel on Saturday (-€0.03).

The fact that prices are changing is nothing extraordinary. It is the fifth time that the price of gasoline has changed this month. Looking at the change in the price curve, one detail stands out: the price of Super 95 has never been lower in more than two years (July 2011). The conclusion is the same for Super 98, which hasn’t been sold for €1.63 since December 2011. Should we rejoice and hope for continued price drops in the next few months? Nothing is less sure…

Changes in the cost of petroleum products are tied to the price of a barrel of crude oil, specifically Brent crude in Europe. Over the last few months, the flow of oil has been fairly stable. “There isn’t much pressure on the current market,” explains ING economist Philippe Ledent. “I see two reasons for this: first, the United States has decreased demand since it began drilling for natural gas from shale; second, the growth of emerging countries is now more moderate, which slows growth in demand. These two simultaneous reasons have stabilized the price of a barrel of oil.”

The drop in the price per liter of gasoline and diesel is not justified by the drop in price of a barrel of crude. The explanation lies elsewhere. “The calculation of the maximum price of petroleum products in Belgium is not based directly on the price of a barrel of crude, even if there is a correlation between the two. In reality the Belgian model relates to international quotes for the refined finished product on the Rotterdam market and to the strength of the euro compared to the dollar,” explains Jean-Louis Nizet, secretary general of the Belgian Petroleum Federation. The euro has been strong against the dollar in the last few months. In July, the exchange rate was 1.30 dollars per euro, while today it is 1.38, its highest level in almost two years. Since the price of crude oil has remained stable in dollars, the stronger euro has lowered the price of the finished product, calculated in euros, and by extension, the maximum price of gasoline and diesel at the pump.

Will it last? Most economists agree on one thing. The euro cannot remain this strong for very long. The European currency’s strength is mostly explained by the American Federal Reserve’s postponement of the end of its economic stimulus plan by several months. The Federal Reserve buys 85 billion dollars in Treasury bonds and mortgage loans each month to support the American recovery. The end of these massive purchases has been announced, which will cause the value of the euro to drop and, at the same time, allow prices for petroleum products to rise.

A strengthening euro can’t be counted on to reduce the price of fuels. Will there be a drop in the price of a barrel of Brent crude? On this point, opinions differ. Some think that the current natural gas from shale revolution in the United States will allow the Americans to become energy-independent, which would cause demand for petroleum to fall along with the price per barrel. Others think that this drop, if it happens, will be relatively fleeting. “At below 100 dollars a barrel, petroleum extraction is no longer profitable due to the depths at which petroleum has to be extracted today. Some petroleum companies would stop production, which would reduce supply and cause prices to rise back to current levels,” Philippe Ledent says. In Madam Irma’s crystal ball, the future is neither too rosy nor too dark.

XAVIER COUNASSE

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