the government will touch the prices on Wednesday

Based on preliminary reports, the government will make a decision on Wednesday, as a result of which fuel will be cheaper. According to Holtankoljak, a liter of gasoline still costs HUF 650 on average, while diesel costs HUF 8 to HUF 639 per liter.

This is not how a healthy fuel market works

Motorists obviously welcome the promised state intervention, hoping at the same time that the measure does not force an additional supply-restricting measure at the same time, or an event that is apparently independent of the intervention, but also limits the supply. In the 2021-22 price cap period, there were plenty of these:

• the state itself limited the range of those entitled to refuel,
• the state has set an upper limit for the amount that can be refueled,
• the maintenance and repair of the Száhahalombatta refinery continued (as it is now),
• the distributors themselves were forced to introduce quantity limits,
• a technical problem also occurred in other European refineries,
• domestic wholesalers greatly reduced or even stopped their fuel imports.

As a result of all this, the supply decreased, and the situation was even worsened by panic buying at the end of 2021. However, those who had access to the fuel only had to pay HUF 480 per liter, while aa charged HUF 800.

Gasoline trade has been reorganized in an unhealthy way

But it came at a high price. Since the retail and wholesale prices of gasoline and diesel were the same, the margin for retailers disappeared. The stronger, larger players of the market endured this relying on their reserves, while the smaller ones were on the verge of becoming impossible.

As a further consequence at the company level, the national sales structure was reorganized at the expense of the small, so-called white wells. It was no longer worth it for the motorist to visit the smaller, cheaper well where he filled up before the official price period, since the price was the same everywhere. The price competition is over. During this period, the larger branded chains acquired new customers, but, according to their statement, at a loss.

It was problematic, although its reconstruction was solved after the price cap was removed.

A goat and cabbage solution is needed

The government hardly wants to repeat the above. But it cannot set a lower upper limit for prices without also taking measures to ensure the maintenance of supplies for domestic motorists. And the problem of market disruption will persist even if the government does not put a price cap on gasoline and diesel, but instead chooses another tool. Minister of National Economy Márton Nagy alluded to this possibility – highlighting the narrowing of the margin – last Friday. But this would also be a gross intervention in market processes. The Ministry of National Economy’s announcement on Friday morning highlighted the importance of fuel purchases among household expenses. (He referred to the results of unspecified surveys.)

There are even taxes

Of course, the retailers have an answer: let the government take back the tax on the affected products! There is indeed plenty of opportunity for this, regardless of the fact that the tax content of domestic fuels is in the middle range in a regional comparison. But on the other hand, there can be an argument in favor of the fact that there are reserves in the margins of gas stations, more precisely in the costs they work with.

In this case, the non-competitive factor is the price of crude oil, because although it has a fundamental effect on the price of fuels, this effect also occurs in countries where gasoline and diesel are cheaper. Furthermore, because the Hungarian government cannot influence the world oil market. However, in relation to the forint/dollar and forint/euro exchange rate, which is also currently making it more expensive, the road is ahead.