Here is why fuel is so expensive in Hungary and when it will change

After the abolition of the fuel price cap in December, fuel prices in Hungary have been the highest in the region by a large margin. The Hungarian central bank (MNB) recently published an analysis on this topic. In their paper, they examine the cost structure of fuel prices, with a particular focus on the evolution of margins above taxes and costs.

Why is fuel so expensive in Hungary?

While Hungary has the lowest import prices in the region thanks to Russian supplies, fuel prices in Hungary are particularly high compared to the rest of the region, Portfolio writes. As a recently published study by the MNB points out, the cost structure of fuel prices can be divided into three main groups:

• the world market price of crude oil, expressed in forints;
• the tax burden reflected in the final consumer price of fuels;
• the margin resulting from the difference between the consumer price and the cost of raw materials.

According to the MNB study, there is no marked difference between the situation of domestic and regional countries with regard to the first two factors.

According to the MNB study, there is no marked difference between the situation of domestic and regional countries with regard to the first two factors.

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According to the report, one of the reasons for the high domestic fuel prices is the significant margin over raw material costs and product taxes in the domestic fuel price bank.

This item includes the cost of:

• petroleum refining,
• wholesale trade,
• retail trade and
• transport,
• and other cost factors and the profit generated by all these.

Ultimately, the markup is the difference between the final consumer price and the price of crude oil plus product taxes, the study says. According to the February data, the average markup for petrol was HUF 102/litre and HUF 152/litre for diesel in other regional countries. Meanwhile, in Hungary, the surcharge for petrol was HUF 170/litre and HUF 187/litre for diesel.

This means that in February, the domestic price of petrol was nearly 70 forints higher than the regional average, while the price of diesel was 35 forints higher. The observed markup on domestic fuel prices has increased significantly since March 2022, the study says.

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The situation is returning to normal

Higher margins may persist initially, but during 2023, a fall in margins to regional levels could mean lower fuel prices and a meaningful disinflationary impact, Portfolio writes. The positive trends have already started at domestic petrol stations in recent weeks. At the moment, the highest prices in the region, especially for petrol, are no longer to be found here. The positive change will be slow but steady in the coming months.

Diesel price change from Friday

The newest changes in fuel prices will come into effect on Friday, 24 March. The price of petrol is not expected to change; however, diesel prices will decrease by HUF 8. This means that from Friday, the average petrol price will be HUF 607, while average diesel price will be HUF 605.

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Source: portfolio.hu, MNB