What Are the Reasons for Changes in Gasoline and Diesel Fuel Prices? Clarification from the Competition Protection Commission

The State Commission for the Protection of Economic Competition of Armenia has conducted a current study in the sector, considering the changes in the prices of gasoline and diesel fuel observed in the Armenian market. The study particularly examined the reasons for price changes during December 2020 and January 2021.

From December 1, 2020, to January 14, 2021, the Commission observed increases in the selling prices of various types of fuel, specifically within the range of 10 to 30 drams. The study revealed that the changes in gasoline and diesel fuel prices were due to several key factors, including global market processes related to oil and petroleum products, a restoration of the normal course of market processes, a depreciation of the Armenian dram, and increased acquisition prices.

At the beginning of 2020, restrictions implemented within the framework of pandemic prevention processes negatively impacted the global economy, as well as the oil and petroleum product markets. The restrictions led to unprecedented effects on oil demand, resulting in a significant surplus in the market that also affected global oil prices, resulting in the sharpest decline in oil prices since 1991.

However, it should be noted that oil constitutes a very small fraction in the production cost of gasoline and diesel fuel (ranging up to 10%, depending on various countries' tax and customs policies), and in this case, the main reason for the decline in gasoline and diesel prices was the substantial drop in demand for these products due to the imposed restrictions. The processes in the global oil and petroleum product markets were also reflected in Armenia, where from February 26 to March 30, 2020, the selling prices of gasoline and diesel fuel decreased by up to 26%.

With the recovery of global economic processes, the regulation of demand in the oil and petroleum markets also began, contributing to rising oil prices; specifically, between April 2020 and February 2021, the average stock price of Brent oil increased by approximately 134%.

The depreciation of the Armenian dram also influenced the price formation of imported goods, including gasoline and diesel fuel, as payments for imported fuel are made in foreign currency. From January 2020 to January 2021, the exchange rate of the US dollar against the Armenian dram increased by about 9% (based on average monthly exchange rate indicators).

To investigate the reasons for the increase in selling prices, the Commission analyzed fuel acquisition prices from major importers. The study revealed that the price of fuel purchased from the Russian Federation had increased in December compared to November by approximately 5% for 92-octane gasoline, about 8% for 95-octane gasoline, and around 12% for diesel fuel. Additionally, from January 2021, the acquisition costs for imported fuel rose by approximately 10% for 92 and 95-octane gasoline and by 6% for diesel fuel compared to December 2020.

Moreover, between December 1, 2020, and January 14, 2021, the depreciation of the dram also contributed to the increase in selling prices of gasoline and diesel fuel. According to the exchange rates presented by the Central Bank, as of October 1, 2020, 1 US dollar was equivalent to 488.6 drams, 493.8 drams on November 2, 506.9 drams on December 1, and 525.5 drams on January 14, 2021.

Consequently, from December 1, 2020, to January 14, 2021, the primary reasons for the increase in selling prices of gasoline and diesel fuel were the depreciation of the dram and increased acquisition costs ranging from 5% to 12%. In the subsequent period, price increases observed by February 19, 2021, were primarily caused by an additional rise in acquisition prices (around 10%) and the sale of new, more expensive batches once the available cheaper stocks had been exhausted.

The Commission's studies have shown that the cost of imported gasoline consists primarily of acquisition costs, transport-related expenses, customs duties, and other costs. The acquisition cost constitutes about 86% to 88% of the total cost, transportation costs account for about 1% to 2%, duties approximately 10%, and other expenses 1% to 2%.

The study also indicated that fuel prices could rise again in the near future, as the batches acquired by some economic operators in 2021 have not yet been sold, and the sale of more expensive batches acquired after the exhaustion of existing stocks may lead to further increases in selling prices.

However, to assess the proportionality of changes in selling prices more accurately, it is necessary to consider the storage methodology applied by economic operators, as they may sometimes import large batches at higher prices and continue to sell those higher-priced batches despite decreases in international prices, or vice versa. Therefore, a comprehensive study taking into account inventory and storage methodologies of relevant selling entities is essential for a clearer assessment of changes in selling prices.

Through the analysis and comparison of the processes and facts observed in this study, no probable signs of violations of economic competition protection legislation have been identified; the recorded price changes during the examined period were determined by several internal and external objective market processes presented in this study.

The State Commission for the Protection of Economic Competition will continue to monitor developments in the gasoline and diesel fuel market and will soon publish findings regarding potential changes in the composition of economic operators, their market shares, and other structural market issues.