Hungarian gov't may meddle in fuel prices - Economy Minister negotiates with Mol

Price of petrol may be adjusted?

Minister of National Economy Márton Nagy held talks with representatives of the Hungarian Petroleum Association, including Mol. According to an earlier agreement, the parties are to hold regular meetings to review domestic and international events and economic developments affecting fuel supply and prices.

At the meeting, Nagy stressed that the aim is to ensure security of supply and appropriate fuel prices, and

asked fuel retailers to strive to ensure that fuel prices are competitive at regional level.

As in previous months, the parties reviewed the possibilities for adjusting prices to match regional level so that domestic fuel prices are at least in the middle range.

The minister stated that

he sees a chance for petrol prices to be adjusted,

adding that no such possibility can be identified for diesel.

One possible means for the government to intervene in the fuel market is price freezes, as we have seen before. At a press briefing last September, Gergely Gulyás, the Prime Minister's chief of staff, did not even dismiss the idea of bringing back the price cap, saying that "this is a bad tool but it is designed to prevent an even worse situation."

Of course, this may not be the solution Márton Nagy's current remark suggests. In any case, the measure and its effects on the market may be a painful memory for many, with both Mol and the Hungarian Petroleum Association stressing the importance of the stability of the domestic fuel market following the September press briefing. The secretary general of MÁSZ also said that if the government reintroduced official prices, serious shortages would emerge in a very short time.

Gulyás also said that the government's aim is to ensure that petrol is no more expensive than in neighbouring countries such as Romania or Slovenia. Let's see how domestic prices fare at present in this regard!

The situation is... not the best

In early February this year,

the price of petrol jumped over the psychological level of huf 600 per litre.

In fact, the price of the 95-octane petrol is currently HUF 603 per litre (on average), while a litre of diesel costs HUF 640.

With the price hikes implemented in recent weeks, the price of petrol has reached a level not seen since November 2023, and is up 8.1% from its local low in mid-December last year.

Fuel prices have gone up a lot since the end of 2023, though. You may get some consolation looking at end-2022 prices, but if you look further down the road, the smile will quickly turn into a frown.

In terms of domestic fuel price developments, Hungarian petrol and diesel have not become the most expensive in the region following the two-stage excise tax increase implemented in January, although the domestic price of both refined oil products is among the highest.

It is little consolation that the steep price rises of the past few weeks (apart from the tax hike) are affecting not only the Hungarian market, as can be seen from the fact that the average price of petrol in the region is currently HUF 574 January, compared to HUF 554 on 17 January (+3.7%),

As for diesel, the average price of HUF 574 on 17 Jan went up to HUF 598 by now (+4.1%).

On the whole,

hungary is not the only country in central and eastern europe where fuel prices have risen markedly over the last few weeks.

This suggests that, in addition to foreign exchange performance, oil price developments are the main explanation for the steep rise. In this respect, however, the outlook is rather positive: in the past few days, the price of oil has plummeted, reacting strongly to the first reports of a possible ceasefire between Israel and Hamas. The markets are hoping that a ceasefire in Gaza will go hand in hand with an easing of the attacks by the Houthi rebels on container ships in the Red Sea and a normalisation of the situation on a key route for global trade. Brent is already down 6.6% from its local peak on 29 January.

The fall in international oil prices is not yet having an impact at domestic filling stations, but if Brent continues to fall,

sooner or later this will be reflected in hungarian fuel prices.

In any case, thanks to the excise tax hike, international conflicts and the weakening of the forint, it is no wonder that the price of petrol has once again crossed north of HUF 600 per litre. If we assign any credibility to what Gulyás said last September, we might be looking at the possibility of a price freeze again, which was unanimously condemned by the government and industry players.

What was wrong with the price cap?

From the outset, the fuel price freeze proved difficult to maintain and highly distortive of market conditions, so the government revised the measure in several rounds in the months before its introduction, successively exempting a growing proportion of consumers from the price freeze.

The government imposed the official price of HUF 480 at the end of 2021 with temporary effect, and then repeatedly extended the measure to the last day of 2022. The following problems and difficulties were encountered before the price cap was phased out:

• In early March 2022, the voices of the Hungarian Road Haulage Association were getting louder and louder,

  pointing to disruptions in the supply chain.

  The government responded to this at a press briefing, outlining the response measures to be taken in the fuel market to maintain the price freeze and security of supply. This was the first time that access to the capped fuel price of HUF 480 was streamlined, allowing trucks over 7.5 tonnes and foreign vehicles over 3.5 tonnes to fill up only at the high-pressure pumps at market prices.
• Then, at the end of May, it was announced that, in order to avoid 'fuel tourism', Hungary would set different fuel prices for vehicles with foreign plates and those with Hungarian plates.

  the european commission opened an infringement procedure against hungary over the new dual fuel price regime,

  requesting the Hungarian authorities to comply with EU law provisions with regard to the free movement of goods and services including transport services, the freedom of establishment, the free movement of citizens and workers, the principle of non-discrimination as well as rules on notifications under the Single Market Transparency Directive.
• Then, at the end of July, another restriction was imposed, and the HUF 480 price was then maintained only for private vehicles, taxis and agricultural machinery. As a precursor of the tightening, Mol announced the shutdown of its Százhalombatta refinery for maintenance, which has made the supply of petrol in the country more difficult. Gergely Gulyás said the two ways of supply are imports and the use of strategic stocks. The latter was only possible to a certain extent, and covering demand from import was not an option, because

  it was not worth it for foreign suppliers to export to hungary at this fixed price.

• As of November, Mol

  maximised the top-up volume at its local pumps

  at 100 per litre per transaction. Other networks introduced (much) lower limits on capped-price fuels.
• Due to the prolonged maintenance work at the Százhalombatta refinery and the loss of imports, which used to account for 30% of domestic fuel consumption, fuel supply problems became more and more serious at the end of November, and the population started panic buying, with partial fuel shortages occurring practically throughout Mol's network. Subsequently, the fuel price freeze was phased out, although it was supposed to remain in place for longer.

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