Setting the Record Straight on Fuel Prices: Are We Paying More or Less?
The Rationalization Behind Perceived Low Cost of Gasoline: A Justified Perspective - Due to its seemingly low price at the pump, many individuals hold the belief that gasoline is inexpensive.
Grabbing a gas station fill-up might seem reasonably priced, but the question is, is it really? Let's break it down.
Take a look at the numbers: In May, the average price for a liter of Super E10 in Germany was 1.68 euros, as per data from the ADAC. Diesel? 1.56 euros. Now, compare this with the average fuel prices from the year 2024 and you'll find that both fuels were more expensive during those times, temporary even hitting over two euros per liter. But let's not forget about those ultra-low prices we witnessed back in 2020, when diesel dipped below one euro per liter. Yep, you read that right - it was actually 40 cents cheaper than it is currently.
So, is fuel now a bargain? Not necessarily. The prices a decade ago were significantly lower as well, with gasoline being more than 20 cents cheaper than today. But before you jump to conclusions, it's essential to consider inflation, as those cars, bread loaves, and restaurant meals also got a price bump over the years. When adjusting fuel prices according to general inflation, which has been above 60 percent for the past two decades, the current prices fall right in the middle, making the past and present prices more comparable.
What's creating these fuel price fluctuations, and what determines them? To grasp the dynamics, we need to look at the composition of fuel prices, which broadly includes oil prices, taxes, and processing and distribution costs.
The oil price plays a significant role in these fluctuations, having ranged from over 100 euros to under 40 euros per barrel in the last five years. However, figuring out the exact portion of fuel price due to oil isn't straightforward as many products are derived from oil. As a rough estimate, the current oil price contributes to about 36 cents per liter.
Next up, taxes make up the bulk of the fuel price. Energy tax, Value-Added Tax (VAT), and CO2 tax account for approximately 105 cents for Super and 86 cents for Diesel, with more than half of this being energy tax - a constant figure since 2003, aside from the fuel price brakes in 2022. The CO2 price is still manageable at around 13 cents for gasoline and 15 cents for diesel, although it has been increasing in recent years.
The remaining portion covers processing, distribution, and mineral oil company profits. While this area lacks transparent figures, it's reasonable to expect that costs will rise due to elevated wages, energy, transport expenses, and similar factors. Nonetheless, this segment is smaller compared to taxes and levies.
To get a better understanding, Christian Laberer, an expert on the fuel market at the ADAC, shares his insights:
"I wouldn't say that fuel is currently cheap," Laberer says, "but we're heading towards making 2025 the fourth most expensive year for filling up. If you factor in inflation, it doesn't look quite as dramatic, but there's still room for prices to drop, especially in the wholesale margins and refineries. There's still a significant amount of money stuck there compared to before the disruptions caused by the Ukraine war."
So, why does fuel still seem comparatively cheap to some? Habit, Laberer believes. He has been warning about people's spending habits for years, even during periods when fuel prices were much higher. People often see current prices as relatively cheap, he observes, "because we've seen much more dramatic prices not too long ago." It's similar to going from a cold room into a cool one – everything feels warmer in comparison.
- In the discussion regarding fuel prices, it's crucial to understand that while current prices might seem reasonable, they are actually higher than fuel costs experienced in 2020, and even more so compared to prices a decade ago, when adjusted for inflation.
- In analyzing the factors influencing fuel prices, it's worth noting that taxes, including energy tax, Value-Added Tax (VAT), and CO2 tax, account for a considerable portion of fuel prices, with taxes making up roughly 105 cents for Super and 86 cents for Diesel, even surpassing the contribution of oil itself.
