The price of fuels

In recent weeks, fuel prices have experienced a completely anomalous situation, within a very complex context: a price trend that was already upward and that the Russian invasion of Ukraine has accentuated.

The price of crude oil, the base price

  The oil market, like any other, is governed by supply and demand and is quoted internationally.

Supply is influenced by decisions made by oil producing and exporting countries; geopolitical tensions, international conflicts, available crude oil reserves and the type and quality of crude oil, as the difficulty of extracting each deposit has an impact on the price, as there are areas where it is more complicated to extract it.

The reference price in Europe is the barrel of Brent, expressed in dollars, also, since crude oil is quoted in dollars, the currency exchange rate can have a significant effect on the price.

On demand, since crude oil consumption is closely related to the evolution of the economy, GDP is a factor that affects demand, as is the time of year, since in winter it increases due to the use of heating oil and in summer due to the increase in mobility due to holiday trips. Finally, oil is also traded on futures markets, which are another element that must be taken into account in the formation of the price.

In this case we are talking about, more or less, 40-50% of the cost of gasoline and diesel.

The refining of crude oil in Spain is carried out by the Companyia Logística d'Hydrocarburos. Wholesalers buy gasoline and diesel from this company and then distribute it to service stations. This gives rise to the following concept: distribution costs, marketing and margins.

Differences between the crude oil market and the fuel market

Fuels, that is, gasoline and diesel, also have their own international markets with their own prices, which, although closely related to the crude oil market, respond to their own supply and demand dynamics. The two reference markets for Spain are the Mediterranean and Northwestern Europe.

These fuel markets vary depending on local factors, seasonality of demand, refining capacity and possible setbacks such as supply problems due to occasional refinery shutdowns, etc.

It should be borne in mind that it is these international gasoline and diesel prices that mainly determine the price at the pump.

Factors influencing fuel prices, taxes and other costs

The price we pay for a liter of fuel has four components:

- the price of fuel on the wholesale market

- the cost of distributing it to gas stations and the margin that gas stations take

- the tax on hydrocarbons

- value added tax

The price of fuel is mainly made up of two elements: the price before taxes and taxes. The first is the international price of fuel, that is, the wholesale cost, to which must be added the distribution costs and wholesale and retail margins.

Taxes - VAT and the special tax on hydrocarbons (IEH) - currently represent 40% of the final retail price (PVP), depending on whether it is gasoline or diesel, since the IEH taxes each differently, but perhaps the one that has the most weight is the IEH. VAT is calculated from the base price of the fuel when the IEH has already been applied.

If we talk about the IEH, it should be understood that it consists of two sections: the general and the special. Both are calculated based on a fixed amount stipulated by law for every 1,000 liters. It is the difference between the IEH of gasoline and diesel, which makes one fuel more expensive than the other.

At current prices, 40% and 50% of the final price of gasoline and diesel, respectively, is formed by the international price and, lastly, by the margins and distribution costs, which represent between 14% and 11%. These include all costs from the time the fuel leaves the refinery until it reaches the service stations, that is: transport, storage, maintenance of minimum safety stocks, marketing and operation costs of the service station, retail margin and other additional costs, such as the contribution to the National Energy Efficiency Fund, the incorporation of biofuels, etc.

Of the final price at the supplier, the wholesale gross margin, from which taxes must subsequently be deducted, is approximately 1.5%.