Oil Prices Rise After Attacks on Saudi Arabia — Diesel Could Reach 50 Crowns per Litre

The price of Brent crude on global markets edged close to $100 a barrel on Tuesday morning. The spike came after Saudi Arabia decided to halt operations at oil refineries in the south of the country following recent attacks by Yemeni rebels. Combined with the existing shortage of refining capacity, this is expected to push fuel prices even higher.

"It's quite likely that we'll see further price increases, primarily for diesel but also for petrol. Diesel will simply remain more expensive. Just two weeks ago we didn't expect this at all, but now it's possible that the average diesel price could briefly reach 50 crowns per litre," says Pavel Peterka, chief economist at brokerage firm XTB.

Refinery Shortage Fuels Diesel Price Surge

Diesel prices have been climbing in recent weeks mainly because of a shortage of oil refining capacity. The US-Israeli strike on Iran damaged numerous refineries in the region around the Strait of Hormuz and the Persian Gulf.

Ukraine, now in its fifth year of repelling Russian aggression, has in recent months knocked out a number of Russian refineries, turning Moscow from an exporter of petrol and diesel into an importer of both. In addition, according to available data, around ten refineries across the European Union have been shut down or repurposed over the past decade.

In Europe, diesel accounts for about 65% of fuel consumption, and in Eastern Europe, including Czechia, the share is even higher — up to 75%. Consumption rises every year in autumn and winter.

"Diesel has to be winterised, which makes it more expensive. Many parts of Europe also still heat with heating oil, which is very similar in composition to diesel fuel," explains Václav Loula, a representative of the Czech Association of the Petroleum Industry and Trade.

"So you can see — the raw material situation will get even worse in autumn. And if the problem in the Strait of Hormuz isn't resolved, oil prices won't come down. But this isn't just an issue for the oil industry. Europe has a structural problem of high fuel consumption, especially diesel, and it needs to be tackled at the European level," warns Loula.

Is a Windfall Tax on the Table?

According to Prime Minister Andrej Babiš, refineries are taking advantage of the situation. While the margin of Czech petrol stations, based on Ministry of Finance inspections, does not exceed three crowns per litre, refinery margins are significantly higher.

"Refineries that used to have a margin of $10 a barrel (159 litres) now have a margin of $100 in the United States, and that's what's driving fuel prices up," the prime minister said after Monday's cabinet meeting. He does not, however, see a problem with petrol and diesel retailers: "The margin overseen by the Ministry of Finance is a maximum of three crowns," he said, adding that fuel station representatives had told him there was no room for their margins to grow, given how low they already were.

"The situation is genuinely very critical. Since June, diesel has gone up by 8 crowns and petrol by 5 crowns, and since margins really are low right now, we need to raise the question at the European level of whether refineries are overdoing it," Babiš added.

The Ministry of Finance has yet to respond to questions about which European measures it is considering to curb rising fuel prices. Jiří Tyleček, head of the analytical department at XTB, believes one possible step could be introducing a windfall tax.

"Refinery margins in Europe held steady at around $20 a barrel for a long time; today they reach $80. The EU could let refineries keep double that margin and tax the rest, say at a rate of 60%," Tyleček muses.

Source: seznamzpravy.cz