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The pen effect, or why the price of fuel does not fall at the same rate as oil

The price of gasoline and diesel It has experienced a progressive rise since before the Russian invasion of Ukraine, and not even after the commodity fell in the futures market. we have seen a significant drop in price of fuels.

This is where the feather effect that the consumer always pays: what is it?

A price stagnation

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The analysis of the National Commission of Markets and Competition reflects that in January 2022, the average PVP in the Peninsula and Balearic Islands of gasoline 95 increased, after the decrease of the previous month, standing at 1.519 euros per liter (3.25 cents per liter plus).

The highest values ​​of recent years continue to be exceeded, explains the agency, while the average PVP in the Peninsula and the Balearic Islands for diesel A increased by 4.30 cents per liter, standing at 1.398 euros per liter.

Magnitudes similar to those recorded in September 2013 were reached, showing that the conflict between Russia and Ukraine was not the trigger for the growing rise in fuel prices.

Diesel Or Gasoline Graphic

Graphic: www.dieselogasolina.com

Currently, the prices of diesel and gasoline have stagnated, and we continue to pay almost the same price as on March 10, when gasoline reached 2 euros per liter, with diesel almost equal.

On March 16, the crude oil market showed its volatility and Brent barrel futures dipped below the $100 barrier. Fears that were later recognized as too exaggerated had pushed the price up, only to plunge it 22%.

But it was not noticed in the pumps.

The feather effect

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One of the factors that explains the asymmetries in retail prices due to changes in the price of a barrel of crude oilor why the consumer does not notice the drops in the raw material, is the so-called rocket effect and the feather effect.

In the first case, when the cost of the raw material rises in times of uncertainty, it is quickly transmitted to the retail price even if they have not bought the oil at high prices yet. That is why we speak of a futures market.

In the second case, if the prices paid by consumers do come down, they do so very slowly.

According to Juan Luis Jiménez, PhD in Economics and professor at the University of Las Palmas de Gran Canaria, the problem lies in thedue to lack of competition at service stations combined with:

  • High price inelasticity of demand (we reduce our consumption little in the face of price increases).
  • Reduced substitutability with other products (hydrogen or electric vehicles are still in the early stages of their expansion).
  • Reduced product innovation.
  • High stability in the market shares of companies.
  • High barriers to entry (especially legal).
gasoline 2

The solution, according to this expert, is to introduce competition in the market (entry of new operators, especially low cost).

Also activate the role of the Public Administration to regulate and sanction those actions contrary to competition developed by the participating companies.

The price of diesel, “totally fired”

We have spoken with the Spanish Confederation of Service Station Employers (CEES), who explain to us that the reason prices are not falling is because the price at which they buy gasoline and diesel depends directly on the international price of diesel and gasoline.

“This has traditionally gone hand in hand with the listed price of a Brent barrel, but now it has become out of date. The main problem is the international price of diesel, because it is completely shot,” explains Nacho Rabadán, CEO of CEES .

Compared to January 2021, in March 2022 it has shot up 240%, while that of barrel Brent has done so by 158%. This asymmetry in the market is due in part to the fact that most of the diesel that Europe imports comes from Russia.

From the confederation they point to a problem with the price of diesel:

“Alternative markets are being sought, but the problem is that production is not increasing and other markets have already been assigned. In addition, greater investment in production and exploitation is not being made due to the threat that to ban combustion vehicles,” he warns.

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