Fuel prices keep rising against recession

While before the 90s Romanians mostly used their cars on weekends and following a timetable imposed by the authorities, now the streets are full of vehicles driving up and down at all hours of the day and night. The economic growth registered in the years before the recession consistently increased purchasing power, leading to a hike in the number of individuals who own cars and in companies' car fleets. At the same time, with the growth of the car market, the price of fuels went wild, escalating to the current value of approximately EUR 1 per liter of gas. At this level, the minimum amount of money an individual spends per month on fuel is EUR 150, in the context in which the average gross salary this year reached EUR 425 and Romania is still struggling with the recession. Why have fuel prices gone sky-rocking? Market specialists say that the fuel price is influenced, among other factors, by the fluctuations of the oil barrel quotations and oil products on international markets. Lately, these quotations have been rising, after the drastic fall at the end of 2008. At the same time, the fuel acquisition price is set by adding costs such as transportation, refining, additivation, storage and distribution and depends on the foreign exchange rates. Recently, the oil price surpassed USD 80 per barrel for the first time since October last year. Moreover, the International Energy Agency (IEA) predicts a recovery for oil prices, with the figure forecast to reach USD 100 per barrel in 2020 and USD 115 per barrel in 2030. But where will it end? Market players say it is hard to predict. “Regarding the oil barrel quotations, it is difficult to make estimates for several reasons, such as financial speculation, the economic context and the demand/supply ratio. In addition, the oil price is very sensitive to social and political issues, which makes it even more difficult to predict. In the future we hope the speculative capital will be reduced, and the price to be influenced only by demand growth,” Zsolt Szalay, country chairman of MOL Romania, told Business Review. This international context will have a noticeable impact on next year's fuel prices. In 2010, Romanians will have to spend even more on petrol. According to market specialists, the impact of the RON's depreciation on the excise level could lead to pump prices rising. The increase of other taxes such as VAT or an additional increase of excises could also impact on the figure. “At the same time the fuel price greatly depends on the evolution of international quotations of the oil barrel. The eventual hike of the oil barrel price will also lead to increased fuel prices. In conclusion, in 2010, considering all these factors, the pump price in RON could go up by over 5 percent,” said the MOL Romania country chairman.

Consumption down, expansion up
The price of oil positively affects net producers and negatively affects net consumers. Since Romania is an oil-importing country, higher oil prices hurt its economy. However, Romania has much greater oil resources than many other countries in the region, hence this negative effect is much smaller than elsewhere. Oil companies with significant upstream activity benefit from higher oil prices. But we must also consider the bigger picture. Romania entered a recession this year after the economy grew at the fastest rate in the European Union in 2008. Nowadays, the country has to face the global credit crisis, which is slowing industrial output and pushing up unemployment. The car sales, transportation and construction fields registered a drastic reduction in activities. In addition, the unemployment rate grew very rapidly, while the public's purchasing power shrank. All of this contributed in the first nine months of 2009 to a decrease in demand. The economic crisis's effect on the national economy, as well as a downturn in business activities, which implicitly leads to a fall in incomes and purchasing power, are only a few of the reasons that have led to the shrinkage in fuel demand. But market players expect a slight bounce back in fuel sales in the next period.”The total fuel volume sold by MOL Romania decreased by 2.9 percent in H1 2009, as compared with the same period last year. On the corporate segment fuel sales fell by 14.1 percent in H1 2009, compared to the same period of 2008,” said the MOL Romania official. Meanwhile, the oil and gas producer Petrom announced that it had registered a 3 percent decrease in its oil production to 23.62 million barrels. But this is not stopping players from continuing their investments. The most important players on the oil retail segment have announced their expansion plans for next year. According to Constantin Tampiza, Lukoil's GM, the company plans to invest USD 8.7 million. Currently, the Russia-based company has a filling station network of 310 units across Romania. Also, MOL Romania told Business Review that in H1 2009 the company invested around EUR 4.5 million in the opening of three filling stations in Bors, Barlad and Codlea. Currently, the Hungarian company has a local retail network of 135 units. “Our 2010 network development investment plan is project-based, depending on the international context and on the local market conditions. We have a solid financial situation and we constantly focus on efficiency. The investments plan reflects exactly this aspect, as for Romania we want a qualitative development instead of quantitative,” said the MOL Romania country chairman.