Oil and Dollar Free Homebound Drivers | Economy

More expensive hotels and apartments, more expensive flights, more expensive bars and restaurants. The holidays that are coming to an end for millions of Spaniards these days have cost them a little more money than in previous years. However, one item of expenditure contrasts with this general upward trend: motor fuel. The average price of petrol and diesel fell in the last week of August, at the beginning of the reversal operation, to its lowest level in a month: €1.56 per litre in the first case (the lowest since February) and €1.56 per litre in the second (the lowest since February) and €1.44 in the second (the lowest in more than a year), according to data published this Thursday in the European Union Oil Bulletin. In both cases, their price is already lower than what it was shortly before the Russian invasion of Ukraine, in February 2022.

Although diesel has been cheaper than its analogues for a year and a half, the decline over the last week has been almost the same: 1.1%. Petrol prices have already fallen by around 4% in just one month, while diesel fuel has been falling for six weeks in a row. At the current average price, filling up a 55-litre tank of 95-octane petrol costs 86 euros, which is 8.6 euros less than just a year ago. If the car is diesel, the cost will be around 79 euros, 9.6 euros less. A significant relief for the almost 4.8 million journeys that the General Directorate of Road Traffic (DGT) predicts from three o’clock on Friday afternoon until midnight on Sunday.

There are two main factors behind this downward trend in oil production: the price of oil, which surpassed $90 a barrel in April and is now around $77, close to a yearly low; and the euro-dollar exchange rate, which has broken through the 1.11 barrier in recent days, approaching levels just before Russia’s invasion of Ukraine.

However, this second element, less known to the general public, has an important impact on the final price of petroleum products. The reason is that crude oil is priced in US dollars, and eurozone buyers have to make a currency exchange transaction every time they enter the market. Consequently, a depreciation of the dollar against the single European currency is ultimately passed on at the end of the chain in the form of a lower price at the pump.

Cost of processing

There is a third factor, though less important – not so much because it carries less weight, but because its impact has been felt for several quarters now – the decline in refining margins. This variable, which indicates the ability of oil companies to make money from their hydrocarbon extraction plants, rose sharply after the complete ban on fuel imports (and, above all, diesel) from Russia, a measure that put much more pressure on the local market and created a gold mine for oil companies. Since then, however, the situation has changed slightly: this area of ​​activity is declining in the profit and loss statements of Europe’s fossil fuel giants.

Despite the recent good trend, the Spanish fuel market continues to repeat a pattern that is already familiar to almost everyone: the so-called rocket and boom effect, the existence of which was documented many years ago by the antitrust authorities themselves. In short, when the price of crude oil rises and the euro weakens, the price that drivers pay to fill up their car rises at a rapid rate, and when it falls, the downward slope becomes much less steep.

Less inflation

Fuel is essential to keeping inflation in check in Europe. Spain’s consumer price index relied heavily on energy to limit its rise to 2.2% in August, the lowest in a year, lower than even the most optimistic observers had expected and already very close to the European Central Bank’s (ECB) target of 2%.

This is a direct impact, but it is not the whole story. The fall in diesel prices is spreading, as mysteriously as it is relevant, across a wide range of basic products in the daily life of households: food or textiles, to name just two examples, have been included in their price – the cost of transportation, which fluctuates greatly depending on the cost of fuel in trucks and vans. So any price reduction affects the rest of the chain. In recent weeks, this has been very positive for the general interest.

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