Economic forecasts for crude oil and fuel prices in 2012
For the third consecutive year, STC Psyche is the only company in Ukraine that can predict the situation in the country’s fuel market, not using Tarot or astrology, or reading tea leaves or occasionally tossing sandwiches, but relying on mathematical models. These models help significantly reduce uncertainty while decision-making and contribute to profit, and are superior to the ones used by the Energy and Coal Industry Ministry in its «price formula.»
Under conditions of unchanged taxation procedures and with the forex rate of the hryvnia, forecasted by the Cabinet of Ministers, our economic outlook holds that prices of A-95-Euro petrol to DSTU 4839:2007 standards in cistern batches will drop to UAH 11,100-11,200 per tonne in February and March 2012, and then they grow to UAH 13,100-13,200 per tonne in June and July in 2012. Wholesale prices of type II diesel fuel to DSTU 4840:2007 standards will change less dramatically and are likely to be between UAH 10,000 and UAH 10,700 per tonne. The average price of fuel will grow in 2012 from 2011 by 4-7%.
The retail price of A-95 Euro petrol will be between UAH 10.50 per liter in February and UAH 11.30 in May and June, and that of type II diesel fuel between UAH 9.40 per liter in April and UAH 9.90 UAH per liter in September. Fuel at filling stations may grow by not more than 4% in 2012 from 2011.
Four major groups of factors will determine the need to adjust the forecasted prices of petrol and diesel fuel upwards or downwards.
1. Domestic demand for fuel:
Due to the economic crisis and a decrease in solvency of the population, demand for fuel in 2009-2011 declined significantly compared to 2008. The reduction in consumption concerned mainly the industry and commercial transportation sector (by 15-30%). However, May-December 2011 saw a decline in retail sales (approximately by 10% year-over-year).
Large agricultural enterprises, the Defense Ministry and the State Reserve are hardly buying any large quantities of fuel. However, a mere 10% of market operators are sure there will be a further reduction in demand (29% late in 2010). In the coming 12 months about a third of traders expect to increase the amount of fuel sold on the domestic market through popularizing customer loyalty programs and inventing incentives for one-time purchases of fuel (from 500 tonnes in wholesale, from 10 liters in retail). However, 2012 will be different because of:
- the low profitability of the fuel business;
- the aggressive policy of traders and fighting for the consumer;
- the exacerbation of unfair competition;
- informational and psychological protection of customers;
- the rapid development of new communications tools between traders and consumers;
- high activity by retail operators’ PR services in social networks.
Traders still suffer from a shortage of working capital, and financing is not affordable for most of them. (Incidentally, a similar situation is observed in the United States now.). A reasonable rate is not always available to operators and that was why the issue of reducing credit rates was raised by the government (instructions issued by the Prime Minister to the Finance Ministry). Therefore, most traders trade with short-term reserves and buy fuel in amounts sufficient for no longer than 15 days.
You can read full article in journal «Terminal: Oil Review» №51(585) 19 Dec 2011
