Soaring oil prices – Upheaval of the government’s plans

By Chrysostomos Tsoufis

On September 10, the prime minister announced from the TIF platform a 25-cent subsidy at the pump for heating oil. The measure was well planned as the government, based on the data at the time (geopolitical and economic), estimated that the international price of oil would decline and thus, together with the subsidy, it could “offer” consumers a price of 1.30-1.35 €/liter on heating oil when it would start being available in mid-October.

The government was right in its calculations. The international price of oil, from $93/barrel on September 9, had fallen by almost 10%, or $9, to $84/barrel by September 30. Everything was going according to plan until it started not going. Suddenly, information began to leak that OPEC+ is going to cut oil production and all plans were thrown into the trash.

Defying the appeals/threats of the Americans OPEC+ cut production and the price of oil has already reached $97/barrel, more than covering the decline of September, and most analyzes suggest that the rise will continue.

If the distribution of heating oil started today its price according to market people – including the subsidy – would exceeded €1.60/litre. In other words, it would be more expensive than last year’s closing in April when prices touched 1.60. Although the heating allowance was significantly strengthened, at this price, even if there were some hopes that some people would turn on the boiler again, they are fading. Those who did not think to change fuel from natural gas to oil, thoughts were and gone.

Just because the government estimated that oil prices would fall, it withdrew the horizontal diesel subsidy at the same time. On September 30, the last day of the subsidy, the price of diesel closed nationwide at €1.828/liter, 14 minutes below that of unleaded. Within 10 days it shot up to €2,024, an increase of 10.7%, and now surpasses the price of unleaded which is €2.01. Pressure to reinstate the measure is intensifying as the market warns of widespread increases since all transport is done with diesel. And if inflation was 12% in September with transport subsidized, where will it go in October without the subsidy? “We are monitoring the developments and we will decide accordingly” say the Ministry of Finance, naturally leaving open the possibility of reinstating the measure.

Who would have thought that good news would arrive on the gas price front? Since the day of the Prime Minister’s speech, they have dropped almost 30%, to €154/Mwh. And taking into account the subsidy of €90/Mwh that applies for October, the price drops to €64/Mwh, returning to the levels of last December. However, given that the government’s main objective is to make natural gas less attractive than heating oil (hence the heating oil subsidy), a reduction in the subsidy from November should not be ruled out if natural gas prices remain at this level the level or even recede.

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