After several weeks of rising prices, the cost of diesel fuel in Latvia unexpectedly decreased. However, experts and market participants warn: for now, this looks more like short-term promotions than the beginning of a sustainable price decline.
Just on Tuesday, the price of diesel fuel at some gas stations nearly reached the psychological mark of two euros per liter. By the next day, many drivers saw completely different numbers on the display — around 1.80 euros per liter, reports TV3 News.
The sharp drop in prices came as a surprise; however, it is too early to talk about a change in trend. Representatives of fuel companies believe that the current decrease is primarily related to temporary promotions in a highly competitive environment.
The company Virši-A explained that in the battle for customers, sellers periodically offer special prices that may be close to cost price.
The price of fuel in Latvia is influenced by a whole range of factors. As noted by Circle K Latvia, these include the geopolitical situation, global oil and petroleum product prices, supply and demand, the euro exchange rate, as well as the peculiarities of the local market. Therefore, it is currently almost impossible to predict in which direction prices will change.
The rise in prices in recent months is largely linked to the conflict in the Middle East. Geopolitical tensions first affect the cost of oil, then the prices of petroleum products, and ultimately influence the cost of fuel at Latvian gas stations. In the second half of July, after a new wave of tensions, prices began to rise again. Meanwhile, a reduced excise tax rate continues to apply to diesel fuel in Latvia.
Luminor Bank economist Peteris Strautins believes that the further dynamics will largely depend on the development of the situation around Iran and Israel. According to him, if the movement towards an agreement between the USA and Iran continues, the price of oil is likely to stop rising. However, any change in the political situation can quickly alter the forecast.
The economist also points out another factor. Recently, the gap between the price of oil and petroleum products has noticeably increased. The reason is the reduction of refining capacities after damage to oil refineries both in the Persian Gulf region and in Russia. This limits the supply of finished fuel and supports high prices even in the absence of a sharp increase in the price of oil itself.
"When another Russian oil refinery caught fire, applause was heard in Latvia, which is quite understandable, as Ukrainians are our allies, and their successes strengthen our security. But each such event, of course, also reduces the already diminishing volume of operating refining capacities," noted Strautins.
Meanwhile, the Competition Council continues to monitor the situation. The agency is already completing its analysis of the situation in the Latvian fuel market and may soon present its findings, which will show how competitive the market remains in the face of sharp price fluctuations.
For now, the price drop seems more like a temporary respite for motorists than a sign of sustainable fuel price reduction.
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