How is the price of fuel determined in Ukraine and why is gasoline so expensive here?
Gasoline has become one of the main drivers of economic growth in many countries. In today's interconnected world, the cost of gasoline has gained international importance as a commodity of utmost importance.
Understanding the dynamics of the global gasoline market is extremely important for market experts, government officials and ordinary citizens who rely on this indispensable resource to fuel their cars in everyday life.
What factors influence the price of gasoline?
The price of gasoline at the pump is determined by a complex interaction of various factors, each of which plays a critical role in determining the final cost paid by consumers.
Oil prices
The price of gasoline is based on the price of oil. Gasoline production relies heavily on petroleum as a primary feedstock, and fluctuations in crude oil prices have an immediate and direct impact on the price of gasoline. Geopolitical events and extreme weather conditions can disrupt the supply chain for oil and petroleum products, affecting prices. Such disruptions create uncertainty, leading to greater price volatility. In the short term, the price of oil is affected by inflexibility in supply and demand due to stagnant production capacity and limited ability for consumers to switch to alternative fuels or improve the fuel efficiency of equipment.
Supply and Demand Factor
The fundamentals of supply and demand are just as relevant in the gasoline market. Seasonal changes, supply disruptions and changes in consumer demand can affect gasoline pricing. Historically, gasoline prices have been driven by seasonal demand. They typically grow in the spring, reaching their highest point in late summer when there is a surge in vehicle activity. Conversely, in winter, gasoline prices tend to decrease. A decrease in the available supply of gasoline based on actual or expected demand for it leads to an increase in gasoline prices. Rapid fluctuations in gasoline prices can occur when there are disruptions in oil supplies, refinery operations, or gasoline transportation logistics. Even if oil prices remain constant, the cost of gasoline may change due to periodic changes in demand and modifications in gasoline standards.
Exchange Rates
Fluctuations in foreign exchange rates can lead to price volatility, which impacts the availability of gasoline to consumers. When a nation's currency strengthens against its oil-priced currency (usually the U.S. dollar), gasoline imports become cheaper and prices at the pump tend to decline. Conversely, oil import costs rise when a nation's currency weakens, often leading to higher gasoline prices.
Government Taxes and Regulations
Countries around the world tax and regulate gasoline to achieve various economic, environmental and social goals. These taxes can vary significantly from country to country and represent a significant portion of the final price of gasoline. For example, the gasoline tax in Japan is about $0.50 per liter as of 2023, while federal taxes and other fees on gasoline retail sales in the United States are only $0.045 per liter as of July 1, 2023.
How big is the global gasoline market?
According to experts, the international gasoline market will grow from $125.94 billion in 2022 to $128.21 billion in 2023, with an average annual growth rate of 1.8%. Moreover, it is expected to reach $136.81 billion by 2027, growing at a CAGR of 1.64%. It is worth noting that North America will hold the largest share of the gasoline market, while the Asia-Pacific region will have the highest growth rate during the forecast period.
Which countries have the most expensive gasoline in the world?
The average price of gasoline in the world is about $1.35 per liter. According to the Globalpetrolprices website, here are the ten countries with the most expensive liter of fuel as of September 4, 2023.
Hong Kong – $3,064 per liter
Iceland - 2,389
Monaco - 2,278
Netherlands – 2,266
Liechtenstein – 2,266
Norway – 2,263
Denmark – 2,257
Switzerland – 2.1714
Greece – 2,166
Italy – 2,118
Which countries have the cheapest gasoline?
According to Globalpetrolprices, we bring to your attention the top 10 countries with the cheapest gasoline in the world.
Venezuela – $0.004 per liter
Iran – 0.028
Libya – 0.031
Algeria – 0.335
Kuwait – 0.341
Angola – 0.362
Egypt – 0.372
Turkmenistan – 0.428
Malaysia – 0.441
Kazakhstan – 0.47
Why do these countries have such cheap fuel? Firstly, they all have huge oil reserves. At the same time, the three cheapest countries - Venezuela, Libya and Iran - are having difficulty exporting their products, either because of the war or because of sanctions imposed by the United States. This means that most of the fuel is available for public consumption and is not exported.
Why is gasoline so cheap in the USA?
As of October 9, 2023, 1 liter of gasoline in the United States cost an average of $1,047 per liter. Typically, richer countries have higher gas prices, while prices in poorer countries or countries that produce and export oil are significantly lower. However, the US is an exception to this rule and has surprisingly low gas prices despite being one of the richest countries in the world. The main reason for this is that gasoline taxes in America have always been very low. The federal gasoline tax was first implemented in 1932 at 1 cent per gallon and is now 18.4 cents per gallon, but the tax has remained unchanged since 1993.
Why is gasoline so expensive in Ukraine?
Russia's invasion of Ukraine last year sent commodity prices soaring. Many commodities were affected: wheat, fertilizers and especially oil. This led to a rapid increase in gasoline prices, which after 4 months in June 2023 reached a peak of 52 UAH per liter of A-95 in Ukraine, which is 65% more than at the beginning of the year.
The main factors that led to the sharp rise in fuel prices were the destruction of supply chains and the fall of the national currency against the dollar by almost 40%. Last but not least, the price of gasoline was affected by a change in the sources of fuel supplies: if before the start of the invasion the lion's share of gasoline came from Belarus, as well as domestic refineries, then from March 2022 all gasoline began to be imported exclusively from European Union countries.
The abolition of the excise tax on gasoline in March 2022 and the reduction of VAT from 20% to 7% helped stabilize the fuel market, and already in September of the same year, excise taxes were returned again, although they were significantly reduced to 100 euros per thousand liters for gasoline, diesel fuel and biofuel , as well as 52 euros per thousand liters for gas. In July 2023, excise taxes on gasoline were again increased from 100 euros per thousand liters to 213.5 euros, and diesel fuel - from 100 to 139 euros. The VAT rate returned to its pre-war value - 20%. This is stated in Law No. 7668-d.
The fuel market responded to the tax increase with a gradual rise in price - during the period from August to October of this year, the price of A-95 increased by almost 18%. As of November 21, 2023, the average cost of A-95 gasoline is 55 UAH or $1.50. Despite the fact that the cost of fuel in Ukraine is not the highest in the world, given the level of income in our state, gasoline costs our citizens the most expensive in the world. Gasoline in Ukraine is unlikely to become significantly cheaper in the coming years.
The lack of domestic production, high oil prices on the world market and high taxes on fuel in our state do not give optimism for significant relief for motorists in the near future.
