Fuel demand increase subdued despite plunging oil prices

Fuel prices may be hitting new record lows on a daily basis of late, and heating and transportation fuel prices retreating to levels not encountered since 2008, but, paradoxically, sector sales in the Greek market are not rising accordingly.

Heating fuel is currently selling for about 87 cents per liter, and 53 to 54 cents for underpriveledged households eligible for subsidized support, a social welfare program that has drawn close to one million applications.

Despite these factors, demand for heating fuel has not increased by more than 40 percent, on average, compared to last year, mostly because of the recent cold weather experienced around the country. Considering the plummeting fuel prices, the increase in demand ought to have been far greater, even 200 percent, according to some market officials.

The subdued response can only be attributed to the negative psychology overwhelming consumers as a result of limited purchasing power. The tax-related steep fuel price increases of recent winters, which turned heating into an unaffordable expense for many consumers, caused much distress and hardship, subsequently affecting consumer behavioral patterns. Numerous households, as a result, have seemingly severed ties with heating fuel as an option and now remain aloof to this specific commodity’s lower prices. Instead, they have turned to alternate options, including air conditioning, portable gas-fueled heaters, even wood-fueled heaters, often the cause of toxic emissions.

“In terms of heating fuel sales, we are about 50 to 60 percent below the levels we were at three to four years ago,” a sector official noted.

Fuel prices have dropped to pre-recession levels. This is a positive development. But it does not tell the full truth as taxes imposed on fuel were previously far more modest. In 2012, taxes imposed on unleaded fuel accounted for 56 to 57 percent of the retail price. Taxes on the fuel now make up 67 percent of the retail price, the highest in the EU.

This helps explain why demand at petrol station pumps has not been boosted by the plunging crude oil prices, down by approximately 57 percent over the past six months or so. This has resulted in a situation where the greater the fall in international crude oil prices, the greater the percentage of taxes imposed on a liter of fuel, resulting in overtaxation. In other words, the drop in oil prices has been beneficial for consumers in Greece, but not to the degree initially imagined.