An Unprecedented Hike in Fuel Prices
In the heart of Central Europe, the Czech Republic, also known as Czechia, is witnessing an unprecedented hike in fuel prices. The escalating fuel prices are worth noting as they directly influence the economy and the standard of living within the nation. A recent survey conducted in České Budějovice on September 24, 2023, revealed that despite fuel prices rising, it was still possible to fill up with a liter of natural 95 for less than 40 crowns. However, the prices of fuel in the country have once again touched the price limit of 40 crowns per liter. Premium fuels, in many places, have exceeded this limit by one or two crowns, and in some exceptional cases, even more.
The Impact of Global Oil Prices
The significant rise in fuel prices is mainly due to the increasing price of oil on the global scale. The price of Brent crude oil, which serves as a reference to the world, has jumped by about 14% over the last month. It is now being sold for approximately $93 per barrel. The weakening of the Czech crown against the dollar, in which oil is traded, also contributes to the increase in fuel prices at Czech gas stations. Over the past month, the Czech currency has lost nearly three percent against the American one, with the dollar being sold in mid-September for almost 23.10 crowns.
The Role of Key Oil Exporters
The core reason for the increase in oil prices is the coordinated restriction of production by key oil exporters, Saudi Arabia, and Russia. Both countries are cutting their production - and plan to do so at least until December - to increase the financial income of their state treasury. The improving macroeconomic outlook of the US and China also contributes to the rising oil prices. However, these high oil prices could again worsen this improving outlook. They represent fresh inflationary pressure, which could cause, for example, the economy of the United States, the largest in the world, not to land softly but harshly. In short, high oil prices increase the risk that inflation in the USA can only be fully tamed by inducing a fairly deep recession.
The OPEC Warning
The OPEC cartel, which brings together a large part of the most important oil producers, is warning of the biggest oil deficit in at least sixteen years for the last quarter of this year. According to its fresh forecast, mainly because of the aforementioned oil policy of Riyadh and Moscow, the oil deficit should reach 3.3 million barrels per day worldwide. Individual countries would thus have to extract oil from their reserves in an unprecedented volume, which would naturally further support its price increase.
Outlook for the Future
Given the current international market dynamics, it is expected that Czech motorists must prepare for an increase in the price of diesel by about one crown per liter, while a liter of gasoline should increase by about 30 hellers per liter the next week. It is crucial to remember that any substantial changes in the demand-supply equation on the global stage will almost certainly be reflected in domestic fuel prices. Additionally, the government's response and intervention in terms of economic and fiscal policy decisions will also play a crucial role. Striking a balance between revenue generation and maintaining the standard of living for its citizens will present a complex challenge for the Czech Republic in the days to come.