The revised economic forecast of prices for crude oil and fuel until the end of 2012
As Ukrainian fuel market operators prepare to start drawing up their plans for purchases and sales for the next quarter, the Psyche Center traditionally makes forecasts for prices of crude oil and fuel. Proven by three years of practice, the results of our calculations not only can reduce the uncertainty in decision-making by the management, but also can contribute to profit in excess to that envisaged in the «price formula» used by the Energy and Coal Industry Ministry.
In accordance with the updated economic outlook, provided the current taxation procedure remains in effect, and the forex rate of the hryvnia against foreign currencies keeps within the forecast by the Cabinet of Ministers, batches of A-95-Euro petrol to DSTU 4839:2007 standards in tankers will go up in price to UAH 13,400-13,700 per tonne in April 2012, and will drop to UAH 12,300-12,500 per tonne by the end of the year. The wholesale prices of diesel fuel type II to DSTU 4840:2007 standards will change less significantly, and are most likely to be within UAH 10,000- 10,700 per tonne. The average price of oil products will grow by 5-7% in 2012 from 2011.
The retail price of A-95 petrol will be UAH 11.00-11.60 per liter, and that of diesel fuel type II will be UAH 9.40-10.00 per liter. Oil products at filling stations are expected to go up in price by not more than 4% in 2012 compared to 2011. The probability of adjusting prices up or down will depend on four groups of factors.
Group 1. Domestic demand for fuel.
The economic crisis and the decrease in the solvency of the population translated into a significant decline in demand for oil products in Ukraine in 2009-2011 compared to 2008. In particular, petrol consumption shrank in 24 regions of the country (although the progressive worsening of its quality was gradually increasing consumption per km). Retail sales of petrol in Kyiv in 2011 fell by 13% from 2008, sales in the city of Donetsk and Donetsk region decreased by 20%, in Luhansk region by 22%, and in Kyiv region by almost a quarter. Demand for this type of fuel in Kirovohrad region dropped by a third last year, while demand in Rivne region slid by 39%. In 2011 about 50% of Ukrainian filling stations offered 11 brands of petrol, marketing it as A-95-Euro. But a reduction in households’ real incomes significantly lowered demand for such products, whose price grew by more than a quarter in the first half of last year. In January-June 2011 their sales declined by 11%, while sales of A-92 petrol increased by 8%, making this fuel deficit (the price of A-92 in June 2011 was even higher than the imported A-95-Euro).
However, a mere 10% of market operators are sure there will be a reduction in demand for oil products in 2012. Almost half of the traders in the next 12 months plan to boost the amount of fuel offered inside the country by promoting loyalty programs and pushing incentives for one-time purchases of fuel (wholesale purchases starting from 500 tonnes, retail purchases from 10 liters).
Meanwhile, the year 2012 will be different due to:
- low profitability of the fuel business;
- traders’ aggressive policy and competition for sales;
- the aggravation of uncivilized competition;
- information and psychological «enclosure» of consumers;
- rapid development of new tools of communications between traders and consumers.
Fuel market operators continue facing a lack of working capital, while loans remain unaffordable for most of them. An affordable loan rate is not always provided to them, which was the reason why the issue of making loans cheaper was raised at the level of government (the prime minister has issued corresponding instructions to the finance ministry). That is why most traders use a «just-in-time» system, buying oil products in volumes that last no more than 15 days.
You can read full article in journal «Terminal: Oil Review» №12 (598) 26 Mar 2012
