Gas Prices Have Dropped: An Expert Explains What Drivers Can Expect
22 June 13:48
Prices for crude oil and diesel fuel on the global market are falling rapidly following a sharp rise caused by the conflict surrounding Iran and supply disruptions through the Strait of Hormuz. The decline has already reached Ukrainian gas stations. Diesel fuel, which cost about 92 UAH per liter at the peak of the price hike, has fallen below 80 UAH at a number of chains. Serhiy Kuyun, director of the “A-95” consulting group, reported this on his Facebook page, according to "Komersant Ukrainian"
Oil prices have fallen to approximately $80
According to Serhiy Kuyun, the drop in oil prices creates favorable conditions for lower fuel prices in Ukraine and simultaneously increases pressure on the Russian economy.
“This is the best-case scenario one could imagine, and one we’ve been waiting for so long. If the price of oil falls to $50 per barrel, it will cause the Russian economy to collapse. And even $60 would be fine,” the expert noted.
Why Oil Prices May Continue to Fall
More oil could enter the global market from several sources at once.
Among the main factors are:
- the easing of restrictions on Iranian oil exports;
- the resumption of tanker traffic through the Strait of Hormuz;
- an increase in Venezuela’s production and exports;
- increased production by the United Arab Emirates;
- potentially increased competition from Saudi Arabia;
- weaker demand from certain major consumers.
An increase in supply amid stable or weak demand traditionally puts downward pressure on oil prices.
Serhiy Kuyun forecasts increased competition
The expert noted that major oil-producing countries are unlikely to sit idly by and watch their market share shrink.
“I don’t think Saudi Arabia—which drove prices down to $15 per barrel in 2020—will sit idly by and watch its market share shrink,” Kuyun said.
If a new price war breaks out among producers, the supply of oil could increase even further. This would set the stage for further price declines in crude oil and petroleum products.
Diesel prices have fallen on the global market
According to Serhiy Kuyun’s assessment, the wholesale price of diesel fuel on the international market has fallen to approximately $880 per metric ton.
Over the past two weeks, the price has dropped by about $220 per metric ton.
This decline is gradually being reflected in the purchase cost of the fuel for Ukrainian companies.
At the same time, prices at gas stations are responding with a delay, as chains are still selling fuel purchased earlier at a higher cost.
Diesel is already getting cheaper in Ukraine
The decline in wholesale prices has already affected the Ukrainian retail market.
“From a peak of 92 hryvnias per liter, diesel has dropped to 80, and half of the chains, including ‘Ukrnafta,’ are already below 80 hryvnias per liter. They say some places have even hit 73. Prices are falling every day,” Kuyun said.
Prices can vary significantly depending on the region, chain, gas station format, and the availability of loyalty programs.
The lowest prices are traditionally found at small chains and gas stations that restock their supplies more frequently.
Why fuel prices don’t drop immediately
The Ukrainian market depends on imported supplies, so there is a time lag between changes in global prices and new prices at gas stations.
Fuel must be:
- be purchased from a European supplier;
- be transported by road, rail, or sea;
- clear customs;
- transported to oil depots;
- distributed among gas stations.
In addition, companies first sell off the stocks they purchased at high prices.
That is why a drop in oil prices does not mean an immediate and proportional reduction in the price per liter of fuel.
Smaller chains lower prices faster
Small operators are the most active in reducing the price of diesel fuel.
They have smaller inventories, are quicker to purchase new batches at lower prices, and are trying to win back customers they previously lost due to price competition with large chains.
“Prices are being actively lowered primarily by small chains, which do not have large inventories and are trying to regain their sales volumes,” explained Serhiy Kuyun.
Large operators typically react more slowly to changes because they have significant inventory and long-term contracts.
“Ukrnafta” has intensified price competition
According to the expert’s assessment, Ukrnafta was able to increase sales in the spring thanks to lower fuel prices.
This forced other chains to revise their pricing policies.
Now, small operators are trying to win back lost customers, while large companies are striving to maintain their sales volumes.
Such competition could become one of the main factors driving further price declines at gas stations.
The Ukrainian market is moving in step with Europe and the U.S.
Serhiy Kuyun noted that the overall dynamics of the Ukrainian market are in line with trends in Europe and the United States.
The decline in global oil prices and the resumption of supplies are gradually leading to lower fuel prices in various countries.
At the same time, the rate at which prices are falling depends on:
- taxes;
- inventory levels;
- logistics;
- exchange rates;
- competition among retail chains;
- the situation with oil refining.
In Ukraine, the hryvnia’s exchange rate against the euro and the dollar remains an additional factor, since most fuel is imported.
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The situation with gasoline is more complicated
Unlike diesel fuel, wholesale prices for gasoline remain relatively high.
Serhiy Kuyun attributed this to local supply issues and Ukraine’s transition to E10-standard gasoline.
Starting July 1, fuel must contain up to 10% bioethanol. Not all traditional import channels can offer a product that meets the new requirements.
The Moldovan supply channel has shrunk
One of the gasoline import channels—the Moldovan one—has temporarily lost its relevance, as suppliers are offering mainly E0-standard gasoline without bioethanol.
As a result, supply on the Ukrainian market has decreased, while wholesale prices have remained high.
According to Kuyun, the wholesale price of gasoline is about 70–72 UAH per liter, while the average retail price is around 75 UAH.
This means that operators’ margins in the gasoline segment have narrowed significantly.
When might gasoline prices start to fall?
The expert expects that by the end of the month, gasoline supply issues will gradually be resolved.
Once imports of E10-standard fuel are back on track, wholesale prices may begin to respond to the overall decline in the global market.
However, gasoline will likely become cheaper more slowly than diesel due to the need to restructure logistics routes and for suppliers to adapt to the new standard.
What Will Happen to Prices at Gas Stations
Future trends will depend on the pace of the decline in global prices and competition among retail chains.
If oil and diesel continue to get cheaper, Ukrainian operators will be able to lower retail prices.
Small chains seeking to boost sales will create additional pressure.
“The desire of some to regain market share and the efforts of others to maintain it will be a powerful driver of further competition. And that’s always good for everyone,” Kuyun emphasized.
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