Cheap euro keeps prices high at gas stations

Pumps at a gas station.
Pumps at a gas station. Source: Ken Mürk/ERR

Although oil prices have fallen to pre-war levels, gas pricing at filling stations remain high. The primary causes are a weak euro and inadequate oil refining capacity.

While crude oil prices have plummeted, gas prices have only fallen slightly from their summer peaks. The primary reason for this is the euro's low value against the U.S. dollar.

"Following World War II, only the United States managed to maintain a stable economy. As all consumer prices have been determined in U.S. dollars since then, if we were to purchase crude oil from Norway today, we would pay for it in U.S. dollars," Professor of Macroeconomics at TalTech Karsten Staehr explained.

The euro's value is unlikely to rise soon, Staehr added.

"Europe is at war. When there is a war, people seek safety. Investors are looking to the United States because Europe lacks this security. America is not as vulnerable to war as Europe is. The United States' macroeconomic outlook is also somewhat brighter because the country produces a lot of energy and thus benefits from rising energy prices."

On the other hand, the lengthy supply chains is important as well. Finding an alternative to Russian oil and refined fuels means importing them from further afield, which means higher transport costs that have already been high since the outbreak of the pandemic.

Refineries were also affected by the pandemic. When demand was low production was reduced; now it will take some time to restore it. Moreover, it may not pay off in Europe, Allan Niidu, the professor of applied chemistry at TalTech, said.

"It is risky to construct a new plant and it is also risky to restart an inactive one. You pay off the startup costs, start manufacturing and selling the product, and then discover that demand has gone. These are not easy decisions to make. The majority of refinery production may continue to take place outside of Europe," Niidu said.

The price of crude oil is also affected by market speculation: the question of how much of the price hike is due to Estonia's own fuel retail chains is a frequent worry.

"It has been a source of concern in other markets, namely that there are so few resellers that they must collaborate in some way. However, I have seen little evidence of this in Estonia. Price increases here are comparable to those in other Baltic countries. The exact same figure," said Staehr.


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Editor: Kristina Kersa

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