The FINANCIAL — Dr. Samson Pkhakadze, Chairman of the Wissol Supervisory Board forecasts that petrol prices in Georgia will soon stabilize. In an interview with The FINANCIAL Pkhakadze analyzed the trends of previous and this year in terms of price variance on petroleum products.
Moreover, Pkhakadze also commented on the article about oil prices published in The FINANCIAL last week. According to the article, prices at petrol pumps are reaching last year’s levels. And this is happening when the cost of crude oil has reduced by 50% compared to the previous year.
“The article of last week talks as if prices at petrol stations in Georgia are close to levels of 2008. When price of a barrel of oil before the crisis was USD 147, the price of Super grade gasoline during that time was GEL 2.30. Today, one litre of Super costs GEL 1 and 75 tetri.”
“I do believe that the prices will stabilize around GEL 1.75-1.80 for Super grade gasoline. The lowest grade product will cost around Gel 1.50-1.55. When we speak about the cost of petroleum products, we should not forget that currency devaluation is included in the current retail prices. If this was not the case, the price of Super would be GEL 1.40-45.”
For two months, the leading petroleum product importers in Georgia have been consistently raising the price of petrol overall resulting in 30% increase. Such an increase has caused questions among consumers. Wissol, one of the biggest importers in Georgia explain that the reason behind is upward trend on international markets:
“Since March of this year, dramatic surge in petroleum products prices has been observed on the international markets. To be more concrete, price for one metric tonne of gasoline is 65% higher. However, the retail price growth on gasoline in Georgia amounted to 48%. Retail prices on diesel products in Georgia have increased by 30% whereas 61% increase in price on the international markets for the same period “says Samson Pkhakadze.
“One barrel of oil used to cost USD 32, but just in 3 months it showed dramatic increase and reached USD 70, later the price dropped to USD 59, then rebounded and today the price of a barrel of oil is USD 69.”
“You always have time lag between price increases on world oil markets and subsequent retail price increases in Georgia. When prices on international markets are rising quickly we can’t reflect this on our pump prices here in Georgia. Petroleum product is a consumer product of frequent consumption. The auto owner has to visit a petrol station on average in every 2-3 days. Purchasing ability of consumers in Georgia though rising during last couple of years is still low; hence if pump prices are increased by 20-30 tetri or more in a short period of time it will be difficult for consumers to digest this hike” says Samson Pkhakadze.
“This was the reason why we have been increasing prices gradually during 2 months. We maintained prices till the end of May and then started gradual increases by 5 tetries at a time.”
“Georgia buys petroleum products on the international markets, and the prices for petroleum products are unified for all players all over the world. All companies are using so called Platt’s quotations published in the information bulletin created by Wauren Plats one hundred years ago. The prices published in the bulletin are the prices that are paid by every company who deals with oil and oil products. You then add up premium that you pay to a refinery or to a trader and transportation costs which in percentage terms are insignificant as compared with products prices. This is the reason why all branded stations in any country always have more or less same prices at pumps. ”
“In recent weeks quite optimistic forecasts are made with regard to economies, commodity prices and stock market prices on the globe. Surged oil prices are one of the good indicators showing that the worse is over and the recovery is underway. Based on these dynamics and the forecasts of OPEC member states, which control 40% of the world oil supply, the price of one barrel of oil will be between to USD 75-90. In January of this year the economy moved to its most acute stage when one barrel of oil was USD 32. There were some experts at that time who forecasted a price drop to USD 25. This is the picture today: one barrel costs USD 69 and I don’t expect we will see any significant swing backwards”.
“In such a scenario, it will be difficult to sustain current prices at pumps for a long time as we are fully dependent on imported oil from abroad.”
“On the other hand we hugely benefit when oil prices are low. The first, we need much lower working capital and saved funds are used for investments. And the second, people do buy more gasoline and diesel when prices are lower.”
“There is no product on commodities markets the price of which is as unstable as price of oil. Goldman Sachs and Morgan Stanley, the largest investment banks, predicted USD 250 for one barrel of oil by the end of 2008 and we saw what has happened. In the medium and long run it’s very unlikely to see cheap oil but to forecast the oil price in short run is a rather time wasting exercise.”
Written By Madona Gasanova
Discussion about this post