Traffic, 28.09.2023

More than CHF 2.00 a litre - and it's likely to get even more expensive

The energy shock caused by the Ukraine war seemed to be over, but the price of petrol and diesel is now suddenly rising again. Here are the main questions and answers.

That was fast. In the summer, the comparatively low petrol prices were one of the few reliefs for the otherwise strained wallet. Now it’s going up again, and steeply. A litre of petrol sometimes costs more than CHF 2.00 at the pump.

How did the abrupt turn for the worse come about? And will petrol become even more expensive? Or will the turnaround soon come again and will filling up a tank become cheaper again?

Why the price surge?
There has been a turnaround in the world markets for crude oil. In June, crude oil was still available at less than $70 per barrel. But it now costs slightly more than $90 – that’s an increase of about 30%.

It’s not as bad as it was after the Russian attack on Ukraine began. At that time, the price shot up to over $110. On the other hand, at the current price of $90, crude oil is significantly more expensive than in the years before Corona, when the price was usually well below $60.

This high price is in the interests of Saudi Arabia and Russia, both of whom have cut their production. The International Energy Agency recently warned that, in this way, the two countries would “create a substantial supply deficit on the global market”.

What has affected the price of oil recently?
The price of oil is currently strongly driven by future expectations. Better economic prospects in the USA or China served as a signal for an increased demand for oil – and the price thereby rose. It will probably continue like this in the coming days and weeks: up, down, up again - depending on whether new statistics or surveys signal good or bad prospects.

A question of current interest is whether the US Federal Reserve will be able to bring inflation back below the 2% mark without causing a recession. Such soft landings have only been achieved once since World War II. An expert wrote the following in the “Wall Street Journal”: “Planes land gently, economies don’t.” But a recession has been predicted for the USA for a long time – but it seems to be taking a long time to materialise.

How is this affecting Switzerland?
As always, Switzerland has not been able to escape the ups and downs on the world markets. The country depends on the import of processed diesel and petrol fuels. This importation thereby sources around three quarters of all the fuel used in road traffic. The remaining 25% arrives as crude oil at the Cressier refinery in the canton of Neuchâtel.

Nevertheless, price increases on the world market are not reflected one-to-one in the prices at Swiss petrol pumps. The consequences are greatly mitigated, because other costs are added to the price of the crude oil, until the final Swiss pump price is reached.

Government taxes make up a large part of the final price. These include, for example, fees for mineral oil, import duties and value-added tax (VAT / MwSt). The final price also includes costs for storage, transport to the gas station, wages, CO2 compensation and marketing.

Mitigation or not: petrol and diesel cost more once again. The prices are again around CHF 2.00 per litre, a little higher or lower depending on the petrol station. That's a lot more than in June and much more than before Corona.

High petrol prices / A litre of petrol already costs around 2 Swiss francs again        Dlovan Shaheri / CH Media

Will it soon become even more expensive?
Unfortunately, many experts expect this. That’s the bad news. The good news, however, is that it shouldn't go much higher. The investment bank Goldman Sachs expects the price of Brent Oil to rise to $100 per barrel in the next 12 months.

An important mark would then have been reached. But the price is already above $90 today. Too much additional financial pain should therefore not be expected at petrol stations.

Will oil cost $150 in the future?
Of course, things could get worse. An analyst at the US bank JP Morgan speaks in a research report of a new “super cycle” that could cause oil prices to rise to $150 by 2026.

Buckle up, it’s going to be very volatile,” the analyst warned on Bloomberg TV. Prices would remain high for years to come. As a cartel of the oil producing countries, OPEC will cut production. And because the energy transition is imminent, less is being invested in the promotion of this.

There are, however, also good reasons not to be afraid of the super cycle. One of them is simply the fact that a lot can still happen between now and 2026 that will prevent a super cycle.

Or you could question the analyst's motives. If his prediction is spectacularly wrong, no one will care in two years’ time. But, by then, customers may have followed his forecast, reallocated their portfolio and thereby brought extra income for the bank!