Fuels: how prices are set in other countries – 05/18/2023 – Market

Petrobras changed this Tuesday (16) the fuel price policy in Brazil, no longer considering the cost of imports in gasoline and diesel prices. The decision should reduce the fluctuation in the price of gasoline, diesel and cooking gas, without disconnecting them from the price of oil.

Although the price of oil is international and affects all countries, in each nation the value of fuel depends on internal readjustment and tax policies, especially when there is a large state-owned company operating.

Argentina, for example, subsidizes fuel, capping oil prices below global market levels to reduce the impact on the population. Other countries guarantee supply at competitive prices and there are still those that adopt special policies in times of crisis, such as during the Ukrainian War.

The international price is influenced by the decisions of the cartel of oil producing countries, OPEC (Organization of Petroleum Exporting Countries). For example, if the group decides to reduce oil production, but demand remains at the same level, the global price increases.

According to the FUP (United Federation of Oil Workers), countries that are large producers always have mechanisms to smooth price volatility, a line that Brazil adopted before 2016 and should guide Petrobras’ new price guidelines now.

In the Middle East, the main oil producers and exporters have a policy of near freezing and price stability. In some other countries in the region, which have not so significant oil production, there are price stabilization and smoothing funds, to guarantee lower values, shows the FUP survey carried out at the request of the Sheet.

The PPI (import parity price), a reference value calculated based on the purchase price of the fuel, and abandoned by Petrobras this Tuesday, is adopted by Chile, South Africa and Australia.

“In general terms, the international experience uses increases or reductions in taxes and subsidies to compensate for price effects, price stabilization funds and oil inventories”, says Pedro Raffy Vartanian, professor of economics at Universidade Presbiteriana Mackenzie.

In the United States, there is no centralized control over fuel prices. The fuel market is largely free and competitive, subject to the forces of supply and demand in each state, says Vladimir Fernandes Maciel, also from Mackenzie.

Fuel prices are primarily determined by factors such as the price of crude oil (which accounts for about 60% of the value of a gallon of gasoline), refining costs, taxes and corporate profit margins.

“The variation in fuel prices can occur daily or even several times a day, reflecting fluctuations in the international oil market”, says the professor.

In France, fuel prices are regulated by the government. “The country has a pricing policy that includes fixed and variable components”, says Maciel.

The fixed components of French pricing are government-mandated taxes and contributions. Among the variables are included the reference price of crude oil in the international market, distribution costs and profit margins of companies.

The government periodically adjusts the maximum selling prices to the public, taking these factors into account, according to the professor of the professional master’s degree in economics and markets at Mackenzie.

In Portugal, fuel prices are determined by the market, based on the forces of supply and demand. However, the government exercises some indirect control over prices through the application of fuel taxes. In addition, there is a public information system that allows consumers to compare the prices charged by different filling stations.

Argentina has a history of state intervention in fuel prices. The Argentine government can establish maximum reference prices for fuels to control inflation and protect consumers.

These prices may be revised periodically by the government, taking into account factors such as production costs, imports, taxes and profit margins. “However, it is important to note that the fuel price situation in Argentina may vary according to economic policy and government decisions in force”, says Maciel.

Colombia, Peru or Chile have fuel price stabilization funds. The measure to mitigate the impact of fluctuations in fuel prices on the international market is funded by the government with resources from the national budget. For example, if the international price is 12,000 Colombian pesos and the domestic price is 9,000 Colombian pesos, the fund contributes the difference of 3,000 Colombian pesos to reduce volatility for the final consumer.

Countries like Venezuela, owner of the largest oil reserves in the world, Cuba, Nicaragua and Bolivia subsidize gasoline. Policy similar to the one Ecuador tried to change and did not have popular support.

price at the pump

The price consumers pay for gasoline and other petroleum-based fuels depends on a number of other factors along the supply chain in each country or region.

In addition to the cost of a barrel on the international market and the pricing policies of each country, the form of distribution, transport and proximity to refineries also come into play.

According to the consultancy Global Petrol Prices, as a general rule gasoline is more expensive in rich countries and cheaper in poorer countries and in large producers and exporters of the commodity.

Currently, those who charge the cheapest for gasoline are Venezuela, Iran and Libya. While those who charge more are Hong Kong, Monaco and Iceland.