Here are the latest numbers - Are Hungarian motor fuels really expensive?

Are fuels expensive in Hungary?

The (average retail) price of 95-octane petrol will have gone up HUF 77 (+13.5%) per litre since the end of 2023, while the growth in the price of diesel will have been HUF 40 (+6.7%) come Friday (26 April).

The European Commission's Weekly Oil Bulletin is updated every Thursday. The data show fuel prices in the region with a three-day delay, i.e. in this case the latest figures are for 22 April. Ottó Grád, President of the Hungarian Petroleum Association (MÁSZ), has previously pointed out to Portfolio that there is a flaw in the KSH's methodology.

He stressed that in a regional comparison, it would only be worth taking into account the prices in the neighbouring countries, and with the Czech, Polish and Bulgarian prices eliminated, the average regional price would be much higher.

Not only the KSH calculates with 10 CEE countries rather than only 7 (Hungary's neighbours), it also excludes Hungarian prices when calculating the regional average.

Let's see how the two kinds of methodologies work.

Portfolio's abridged list of countries and the inclusion of Hungarian prices in the average gives us the following ranking, with an average petrol price of HUF 639.

In this case, a litre of 95-octane petrol costs HUF 9 or 1.4% more than the regional average.

The regional average price of diesel is also HUF 639, and the Hungarian price is HUF 11 or 1.6% higher than that. The spread here is a lot wider, given Serbia's extremely high diesel price.

The stats office works a bit slower than us, and it is scheduled to release its calculations based on the Commission's data only tomorrow. The government will rely on those figures when deciding on a possible intervention on the fuels market.

As we pointed out in an analysis last week, the KSH's methodology has its flaws that cause considerable distortions and may lead to wrong conclusions from the government's part. One of the main distortive element is the

inclusion of Bulgaria into the regional average,

and not just because the northernmost point of the country is 360 kilometres from the Hungarian border, but also because the structure of its market is fundamentally different than that of Hungary's neighbouring countries that generally have no access to the sea.

According to the KSH's methodology, the average petrol price in the region is HUF 623, with Hungary's average price HUF 25 or 4.0% higher.

The average price in the region for diesel under KSH methodology is HUF 622, which makes the Hungarian average price HUF 27 or 4.4% higher.

What factors are affecting the prices?

Basically, how regional fuel prices compare with each other depends on many factors, including taxes (VAT and excise duty being the two most important), competition, distance from refineries, petrol station turnover, import opportunities and costs, and profitability, which also varies according to supply/demand.

The most important external variables (i.e. non-market variables such as distance from refineries and import opportunities) that can be considered as market variables are the evolution of world oil prices and refinery premiums, and the performance of the forint against the dollar.

The first two elements are not relevant in a regional comparison, as higher oil prices and widening margins may lead to higher petrol and diesel prices in neighbouring countries, while the forint's performance has a targeted impact on domestic fuel prices. The past few months have not been favourable for the foreign exchange market, to put it mildly:

SO FAR THIS YEAR, THE FORINT HAS WEAKENED BY 6.3% AGAINST THE DOLLAR, WHILE THE AVERAGE DEPRECIATION OF THE CURRENCIES OF THE NEIGHBOURING COUNTRIES HAS BEEN ONLY 3.2%.

The tax burden also plays an important role in the development of fuel prices: in this respect, an important event specific to the Hungarian market occurred this year, as the increase in excise tax led to a HUF 42 rise in the price of petrol/diesel per litre at the pump.

The tax increase itself was necessary due to EU rules, but its level could have been lower: the two-stage increase implemented in January was set at a level sufficient to cover the EUR 420 exchange rate, so there is some room for manoeuvre to reduce the burden (currently 393 forints per euro).

But the really interesting thing about the tax rates is that the tax content adjusted for the EKR fee and the special tax on retailers is

NOT TOO HIGH COMPARED TO THE neighbouring COUNTRIES,

with the 49.1% tax rate calculated from the Hungarian Petroleum Association (MÁSZ) data source almost exactly the same as the regional average. The domestic situation is slightly less favourable for diesel, where the tax rate for Hungarian fuel is 47.2%, compared to the average of 45.2%.

Portfolio does not have official data on the profit margins of domestic oil market players and it would be difficult to compare the procurement cost structures of the countries on a percentage basis, but other information, especially the weak forint, suggests that

DOMESTIC PLAYERS ARE OPERATING WITH LOWER MARGINS THAN THE REGIONAL AVERAGE,

whether it is the premium for procurement and refining (wholesale margins) or the profit of the pumps, i.e. the retail margins. 

Country-specific factors

We have looked at how non-market-based government decisions and burdens affect fuel prices in two countries with a particularly large deviation from the regional average:

Austria

The excise tax rate is much higher than the EU minimum, at 0.482 cents per litre, which is 0.387 cents per litre in Hungary. The difference is HUF 37 at the current EUR/HUF exchange rate, but the domestic advantage from the two main taxes is reduced by HUF 26 due to the lower Austrian VAT rate of 20% (compared to 27% in Hungary). If VAT is included, the two main taxes should make Austrian petrol HUF 11 more expensive. 

Other taxes (such as the EKR or the retail tax in Hungary) exist on the Austrian market too. According to the European Commission's data source, indirect taxes amount to a total of HUF 43 per litre in the price of petrol there, while in Hungary the EKR and the retail tax account for HUF 27 in current prices.

So, all in all (and assuming that Austrian communicates in a transparent fashion with the Commission, unlike Hungary), the difference in the tax burden alone should make Austrian petrol HUF 27 more expensive, while the actual gap is "only" HUF 13.

However, this divergence is probably not explained by the fact that Austrian operators are working with lower profits, but rather by the currency advantage (6.3% fall of the forint against the dollar this year vs. 2.2% depreciation of the euro), but a potentially more favourable Austrian procurement cost structure cannot be excluded either.

Romania

The situation of Romanian fuel market players is also different with regard to the two main taxes. Romanian VAT is 19% (27% in Hungary), but the excise tax on petrol is 0.4 euro cents per litre (0.387 cents per litre in Hungary). The total price advantage for Romania from the tax difference amounts to HUF 36 per litre. The Romanian VAT on petrol at HUF 586 per litre is HUF 93.5 compared to HUF 136 in Hungary, but the difference stemming from the excise duty rates is HUF 6.5 per litre in favour of Hungarian fuel.

However, the Romanian market (at least according to the Commission's data) is not subject to any other tax burden that exist only there, i.e. there is no EKR obligation (HUF 8/litre) and no 3% retail surcharge (HUF 19/litre), so the differences in the tax burden alone should make Romanian petrol HUF 63 cheaper, which is not far from the reality (HUF 57). However, industry sources said that Romanian fuels will also see an increase in excise duty on 1 July 2024, with an extra HUF 19 on petrol (HUF 25 on diesel) at today's RON exchange rate.

Cover photo: Getty Images