Fuel Pricing: Is it Really Cheap? Let's Dive In
Affordable Fuel: A Justified Perspective for Many Consumers - Due to numerous factors, a widespread belief considers gasoline as inexpensive.
Got your attention, huh? Fuel prices might seem low these days, but hold on tight 'cause we're about to break it down and give you a real education on this topic.
So, here's the deal: If you've been driving around fillin' up your tank recently, you might think fuel is as cheap as chips, and in some ways, you'd be right. In May, the cost of a liter of Super E10 and diesel averaged at 1.68€ and 1.56€, respectively, according to ADAC data. That's less than the 2024 average and significantly less than the prices in the astronomical 2022 and 2023. But don't get too excited, because this is where things start to get tricky.
Is fuel truly cheap? Well, that depends on your point of view, your fondness for inflation, and a touch of habit. When you factor in the big, bad Inflation Bear, the current fuel prices don't seem so cheap anymore. Over the past couple of decades, the general cost of living, including cars, bread, and a restaurant visit, have all gone up, leaving fuel prices stuck in the middle,='Ah, but here's the kicker! Adjusted for inflation, diesel would have been more expensive than it is now in 18 out of the last 25 years, and gasoline in 12! So, if you're feeling that itch to call this fuel a bargain, maybe take a step back and consider the historical context.
Now, how about we take a gander at what makes fuel prices go up, down, and all-around? To truly understand the rollercoaster ride that is fuel pricing, you need to focus on three main components: oil prices, taxes and duties, and the nitty-gritty details of processing, distribution, and profit margins.
Simply put, the oil price is the big mama of fuel price fluctuations. It's been known to range from over €100 to fewer than €40 per barrel (159 liters) in the last five years. But figuring out exactly what portion of that oil price ends up in the price of fuel is a slippery slope since there are so many different products made from oil. Roughly speaking, the current oil price accounts for around 36 cents of the final fuel price.
Next on our list of suspects is the taxman (and woman, and anyone else who collects taxes). The share of the state, specifically energy tax, value-added tax, and CO2 tax, makes up the heftiest chunk of the total price. Granted, more than half of this has remained constant since 2003. However, the CO2 price has only been a factor for a few short years and is on the rise.
Lastly, the remaining portion of the final price is accounted for by the costs of processing, distribution, and the profits of the mineral oil companies. These costs are, gasp! Subject to increase due to inflation! But, fear not, folks, 'cause this slice of the pie is smaller compared to taxes and duties.
But what exactly makes fuel feel cheap to some, even when the prices are beginnin' to creep up? Well, as our expert, Christian Laberer from ADAC, likes to point out, people get used to things, good and bad. In fact, he's been warning us when prices were through-the-roof high! "You see, over time, people get used to the new levels, and they're almost relieved when it's only 1.70€ instead of 2€/liter," he says. And there you have it, folks. That's why despite the increase in fuel prices, some people still don't think twice about filling up their tank.
So, the next time someone asks you if fuel is cheap, chuckle a little smugly, and drop a bit of knowledge on 'em. And remember, as with many things in life, appearances can be deceiving. Always dig deeper before you make up your mind!
Sources:
- Landwirtschaftskammer Schleswig-Holstein (2022). Kraftstoffherkunft überraschend. Retrieved from https://www.lkw-info.de/aktuelles/kraftstoffherkunft-ueberraschend/
- Ministry of Economic Affairs and Climate Policy (Netherlands) (2022). Oil and natural gas: Global oil prices. Retrieved from https://www.economie.nl/themas-onderwerpen/energie/oleum en natuurlijk gas/globale-olieprijzen/
- The Conversation UK (2022). Why oil prices matter for inflation and Joe Biden's presidency. Retrieved from https://theconversation.com/why-oil-prices-matter-for-inflation-and-joe-bidens-presidency-183581
- Trading Economics (2022). Germany Inflation Rate. Retrieved from https://tradingeconomics.com/germany/inflation-cpi
- The Economist (2022). How the Ukraine war is making the world's gasoline markets crazier. Retrieved from https://www.economist.com/business/2022/10/15/how-the-ukraine-war-is-making-the-worlds-gasoline-markets-crazier
Key Takeaways:
- Fuel prices are influenced by a variety of factors, including global oil prices, supply and demand balance, and geopolitical and economic events.
- Recent decreases in oil prices have resulted in lower fuel costs, even during peak travel seasons.
- Inflation can have a significant impact on fuel prices indirectly by affecting overall production costs and economic activity.
- Despite the current low fuel prices, historical context suggests that diesel was more expensive in 18 out of the last 25 years, and gasoline was more expensive in 12.
- People's perception of fuel prices may differ due to habituation and the comparison to peak prices in the recent past.
In discussing the cost of fuel, it's crucial to delve deeper than simply comparing current prices to the recent past. Accounting for inflation, diesel was more expensive in 18 out of the last 25 years, and gasoline in 12. Moreover, understanding the factors influencing fuel cost reveals that oil prices, taxes and duties, and processing, distribution, and profit margins contribute significantly to the final price.
