Basic fuels at gas stations in Croatia significantly increased in price yesterday. The maximum price of a liter of Eurosuper 95 rose by eight cents, to 1.62 euros, while eurodiesel increased by as much as 16 cents, to 1.75 euros per liter. The new prices have been in effect since Tuesday and will remain in force for the next 14 days.
At the same time, the price of crude oil on world markets fell sharply. Brent, the world's most important benchmark for crude oil, dropped on Friday, July 24, and the decline continued on Monday and Tuesday. Over those three trading days, it lost about 16 percent of its value, closing on Tuesday at $84.09 per barrel.
At first glance, this seems illogical. If oil is getting cheaper, why is fuel at Croatian stations getting more expensive?
The reason is simple: Croatia does not set fuel prices based on the daily price of crude oil, but on the average price of gasoline and diesel over the previous two weeks. Additionally, the calculation period ended before the majority of the oil price decline.
New prices look back two weeks
For the prices that took effect yesterday, the fourteen-day calculation period from Monday, July 13 to Sunday, July 26 was considered.
The biggest drop in Brent occurred on Monday, July 27 and Tuesday, July 28, that is, after the end of the calculation. Market prices published on those days could not affect the prices that had already been set and came into effect yesterday.
Brent's decline on Friday, July 24 occurred within the calculation period, but it also does not directly enter the Croatian formula. The formula does not calculate the price of crude oil, but the price of already produced gasoline and diesel. In addition, one day of decline has a limited impact on the average of the entire two-week period.
During most of that period, oil was significantly more expensive. Brent reached $100.69 per barrel on July 23 after shipping disruptions and attacks on tankers in the Middle East. Only after that did it begin to fall sharply.
Why are prices calculated every two weeks?
The regulation stipulates that the calculation period lasts 14 days, from Monday to Sunday. The calculated maximum retail prices then apply for the next 14 days. The Croatian model is not unique. A very similar two-week system is used by Slovenia, while Montenegro, North Macedonia, and Serbia change prices every week.
Such a system mitigates sudden daily changes. If the fuel price were determined by just one exchange day, every political conflict, tanker attack, or short-term supply disruption could be immediately transferred to gas stations.
However, the system has another side. Market changes are transmitted with a delay. When prices rise sharply, drivers do not feel the increase immediately. Likewise, when prices start to fall, fuel does not become cheaper on the same day.
Croatia does not directly track Brent
Therefore, Croatia does not only track the price of crude oil, but also the wholesale price of already produced gasoline and diesel on the Mediterranean market. For this, data from the agency Platts is used, which daily estimates the prices at which certain types of fuel are offered and sold in that region.
In the public, this is often called the "Mediterranean exchange," although it is not a single exchange or a single place where Croatia buys fuel. Platts calculates the reference market price of gasoline and diesel for the Mediterranean based on offers, demand, and concluded deals.
The reference price includes not only the value of the fuel but also the costs of its transport and insurance to a specific Mediterranean area.
Such a price is more important for Croatia than the crude oil price itself because it shows the value of already produced and delivered fuel that can be sold at gas stations on the regional market.
Crude oil can become cheaper, while diesel remains expensive
The prices of crude oil, gasoline, and diesel generally move in a similar direction, but they do not have to change at the same speed.
Crude oil can become cheaper, while diesel remains expensive if refineries do not produce enough fuel or its stocks are low. Prices can also be affected by refinery shutdowns, export restrictions, and higher delivery costs.
European refinery margins on diesel in July rose to a record of about $65 per barrel, showing how tight the market for that fuel was. The refinery margin is not the same as the gas station margin. It is the difference between the value of crude oil and the value of fuel that the refinery produces from it.
Such a situation on the European market helps explain why diesel in Croatia increased by 16 cents, twice as much as gasoline.
What all goes into the price of a liter of fuel?
The Mediterranean price of finished fuel is just the beginning of the calculation. Since the quotations are expressed in dollars, they are converted into euros at the daily exchange rate of the Croatian National Bank.
The cost of the biocomponent, i.e., the share of biofuels mixed with gasoline or diesel, is added. Then the premium of the energy entity enters the formula, covering the costs of distribution and sale, as well as the trader's profit.
Finally, excise duty and VAT are added to the obtained amount.
To mitigate the price increase, the government this time reduced part of these burdens. The excise duty on diesel was reduced by four cents per liter, and on gasoline by one cent. The allowed distributor premium was reduced by an additional one cent per liter for both fuels.
According to the calculation of the Ministry of Economy, without these measures, gasoline would cost 1.77 euros and diesel 1.94 euros per liter.
Will fuel now become cheaper?
The decline in crude oil can contribute to lower prices, but it does not mean that fuel will automatically become cheaper in the next calculation.
For the next prices, the average of new Platts quotations for gasoline and diesel on the Mediterranean market will be considered. The exchange rate of the dollar against the euro, the prices of the biocomponent, and the government's decisions on excise duties and allowed premiums will also be important.
One or two days of decline are therefore not enough for a reliable forecast. Lower prices of finished fuels would have to last long enough to significantly lower the average of the entire two-week period.
