Issue 39: Gasoline Prices in The World and in Georgia

Since July 2014, the world price of the crude oil per barrel has started to decline significantly. In January 2015, the price on per barrel (116 liter) of crude oil decreases by 57.45 USD compared to July 2014 and equals 45.7 USD. Hence, in this period, the world price of the crude oil decreases by 55.7%, while the price of premium type gasoline in Georgia decreases only by 20.3%.

In 2014, the daily world oil supply increases by 2.1% compared to 2013. In this period, the daily world oil demand also increases (0.7%), but the growth of demand is lower compared to the growth of supply, hence, on average the daily world crude oil supply exceeds the daily world crude oil demand by 0.8 mb.

Source: International Energy Agency

Source: www.investing.com

In the each quarter of 2014, the daily supply of the crude oil exceeds the daily demand on the crude oil. In 2014, the daily supply of the crude oil increases on average by 1.9 mb compared to 2013 and equals 93.2 mb/d. While the daily demand on the crude oil increases on average by 0.62 mb and equals 92.4 mb/d.

In 2014, the higher increase of the daily crude oil supply in comparison with the daily crude oil demand reflects in decline of crude oil price per barrel, which has started since July 2014. In January 2015, this indicator decreases by 55.7% compared to the indicator of July 2014 and equals 45.7 USD.

Even though, the world crude oil price decreases, the world largest supplier OPEC leaves its supply of crude oil stable. This can be explained by the fact that OPEC does not want to lose its market share.

Decline of the world price on crude oil per barrel reflects in the decline of the gasoline prices. In different countries, the price reduction on gasoline does not start in the same period and differs in terms of price reduction size too.

The price reduction on the premium gasoline starts in USA and in the European countries (Belgium, Germany, France, Netherlands, UK and others) in the same period, July 2014.

In January 2015, in US the price on per litter of premium gasoline declines by 35 cents (-34.2%) compared to July 2014. The decline of the gasoline price in USA is lower compared to the decline of the crude oil price per barrel (-55.7%).

In the same period, the price on per litter of premium gasoline decreases by 64 cents (-29.5%) in Belgium, by 62 cents (-26.2%) in Italy and by 60 cents (-28.3%) in Germany. The decline of petroleum gasoline price in the European countries is lower than decline of the world crude oil price.

 Source: U.S. Energy Information Administration

Source: Gulf Georgia

In Georgia, gasoline price decline started in September 2014. This indicates that the change of the crude oil price in the world market is transmitted to Georgian market with the 2 months’ time lag.

In January 2015, the price on 1 liter of premium type gasoline decreases by 0.47 GEL (-20.3%) compared to July 2014 and equals to 1.85 GEL, while the price on 1 liter of regular type gasoline decreased by 0.46 GEL (-21.4%) and equals 1.69 GEL. Taking into account the exchange rate, the price per 1 liter premium and regular type of gasoline declined, thus, by 39 and 37 cents.

In Georgia, the reduction of the gasoline price is significantly lower compared to the decline of the world crude oil price, as well as compared to the decline of the premium type gasoline prices in the above mentioned countries.

In 2014, the total value of the gasoline import in Georgia also decreases (-7.3%; -27.4 mln. USD) compared to 2013. This is due to the decline of the price of this product in the market, as during the first ten months of 2014, the total volume of the gasoline import in Georgia increased (0.8%; 2.6 mln. kg).

One of the reasons of the relatively lower impact of the crude oil price reduction on the gasoline prices in Georgia, is the depreciation of GEL against USD in this period.

In January 2015, USD appreciates against GEL by 13%. It should be noted, that in this period USD also appreciates against EUR by the same rate (13%), even though, the price on per litter gasoline declines more in European countries compared to Georgia.

In addition, the logistical expenses of the importers of this product (transportation cost, warehousing and taxes) effects on the final market price of the gasoline in Georgia.

 Source: www.oanda.com

Source: GeoStat

In January 2015, the indicator of the inflation of transport group (among them gasoline, diesel, long distance auto transport, long distance train) is negative (-6%), indicating, that prices decline in transport group by 6% compared to the corresponding months in 2014.

In January 2015, the overall price rate increases (1.4%) compared to the January 2014, but this indicator does not exceed the critical edge (5%), hence, it is not alarming.