Fuel prices to skyrocket if the government abolishes price cap in February

There are only 3 weeks left until the 15th of February when the gasoline price cap, introduced last year by the government, will expire. Hence, the government should soon make a decision on whether to extend or end the forced price cap. If they decide to remove it, it will pose a serious risk before the election, writes Forbes.hu.

Oil prices keep rising

Ever since we have started coming out of the lowest point (due to the coronavirus epidemic in March 2020) when the price per barrel was around USD 20, oil prices on the world market have risen sharply. The reason for this is that the supply cannot keep pace with the growing demand because the extraction capacity, labor and transport are limited, said Péter Virovácz, senior analyst at ING Bank to napi.hu.

The deficit economy has been pushing up the prices, including the price of energy. On top of that, we should not forget the geopolitical situation in Russia and Ukraine, which causes significant unrest on the markets as conflict could break out at any time.

90 USD per barrel

According to forecasts, the figures are unlikely to bounce back from current levels. The most likely scenario is that oil prices will rise above USD 90.

In addition, if the price cap is going to end in mid-February, we would certainly have to pay higher prices than the fixed HUF 480 level at the gas stations, Virovácz said.

It seems like a politically logical step to extend the price cap for another three months, as the increase in gasoline prices poses a serious political risk for voters, says Péter Virovácz.

In three months’ time, the energy crisis currently fueling the oil market and the Russian-Ukrainian geopolitical conflict may be over, so the prices can again go down a little.

• Read also: Fuel prices in Hungary among lowest in EU thanks to price cap

The decision is not yet made

Last week, the Ministry of Innovation and Technology (ITM) answered the question of whether the price cap would remain unchanged. They affirmed that the decision is going to be made soon and the extension will be based on the overall situation of the world market in mid-February as well as other economical and political factors.

In connection to the current oil market developments, holtankoljak.hu wrote that the purchase price of domestic fuels could rise further. There are gas stations that are already forced to sell fuel at a loss due to high purchase prices, the current price cap and their own cost structure. If wholesale prices continue to rise, the number of these filling stations (the ones that are experiencing loss) will rise further next week. In terms of retail prices, the number of petrol stations that sell fuel for less than the official price is below 200. You can usually refuel for HUF 480 forints at most places. 

The government has not yet decided on the issue, but it would be crucial for the petrol chains to know how long they have to continue to operate at a loss.

• Read also: Hungarian PM Viktor Orbán: People support cap on fuel prices

Source: forbes.hu, napi.hu