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Gas prices in Cyprus stubbornly high

21/08/2015 08:16
Gas prices in Cyprus continue to remain relatively high as their changes continue to deviate substantially from the changes in the international price of crude oil limiting the net benefit of the oil slump for local households and firms by about 21 cents per liter.

As shown in the table, the net prices of gasoline (95 octanes) in Cyprus decreased since the beginning of 2014 by about 14,5% while international oil prices declined during the same period by about 40,8%.

The deviation becomes even bigger when gross prices are considered, as during the same period they declined by just 7,7%.

Gross prices represent the end price consumers are paying at the gas stations and include a fixed tax of €0,49/ ltr plus VAT of 19%.

The oil price declines should directly affect net prices.

As the price for oil declines internationally, and given the fixed amount charged by the government which including the VAT amounts to €0,5831/ltr , the state tax becomes increasingly higher and renders the change to the consumer end price less responsive to market declines.

It is characteristic that given the considerable decline of the last couple of weeks, the tax imposed is about the same as the net price.

Of course the winner from this, at the expense of the consumer, is the state coffers.

Perhaps a variable tax as opposed to the fixed one, would be a fairer proposition especially when taking into account that at the time the amount of fixed tax was decided, oil prices where most probably much higher than now.

The shown prices of crude oil are approximate and represent cost per barrel in euros taking into account the prevailing Eur/Usd exchange rate at each period.

Consequently, they represent a good approximation of the cost to Cyprus oil companies as, although purchases are made in Usd, the shown figures are accordingly adjusted to Eur.

The net price seems to be changing at a lower rate than the corresponding changes in international prices of oil but the differences are especially large when oil prices drop.

If net retail prices were adjusted based purely on cost, they should be at €0,407/ltr at the end of the period under examination and thus gross prices at €1,067/ltr, about 21 cents below their actual level.