Retail gas prices set to climb further

  • 2003-03-27
  • Thomas Foulquier

Prices at Baltic fuel pumps, already beleaguered by the war, are poised to continue rising due to growing uncertainties about the conflict's duration, analysts said.

Transportation companies are already seeing the effects of the price rise on the profit margins and industry representatives fear the worst is yet to come.

Leonid Alshansky, chief analyst at Rietumu Banka, said he had no doubts that oil prices would increase further and that Latvia would feel it.

"Yes, there will be consequences for the Latvian economy, but the harm will be lighter than for bigger countries," he said.

"First, prices of gasoline and fuel oil will rise, impacting the price of products based on energy and possibly creating some inflation," said Alshansky.

On the other hand, Raivo Vare, CEO of Pakterminal, an Estonia-based oil transit company, told the Aripaev daily that the war will not affect the Estonian fuel market thanks to measures taken by OPEC to increase output.

Latvia's truckers, however, would have none of it. Pavel Grosevs, secretary general of Latvijas Auto, the Latvia-based truckers association, said truckers had already suffered from the 15 percent price rise the markets had seen since the start of this year.

And with the war effort apparently bogged down with pockets of stiff resistance, retail gas prices will continue their upward trajectory.

"Oil prices will rise," Alshansky said. "In the first week of the war, there were speculations on circumstances, but now the reality is the war looks longer than first expected."

Uldis Sakne, executive director of Latvia's Fuel Retailers Association, told the daily Diena that diesel prices would continue to increase until the Iraq crisis ends.

They have climbed since the end of 2002 by an average of 0.03 lat (0.05 euros) to 0.04 lats per liter, according to analysts.

"It adds to the trend of additional government regulations, and altogether increases the cost of the truck fleet," Grosevs said, adding that truckers' total costs are now twice what they were last year.

Although truckers will have no choice but to raise their prices, their is an interim period before they can do so.

"Our costs increase, but as it takes a long time to adjust prices, it does put companies in a delicate situation," Grosevs explained.

"For transportation companies, there is a one-month – or more - delay between the transportation of goods and the moment when they cash their invoices. Now companies live on last December's invoices, and because costs are still rising, they play the role of crediting the rest of the industry," he said.

Fuel retailers themselves were reluctant to comment on any possible price increase.

Inga Bite, marketing manager at LUKoil Latvia, said: "It's fifty-fifty. We do not know yet if prices will increase."

Speaking to the Baltic News Service, Sakne said that "several factors influencing fuel traders have conspired" to jack up gas prices.

He cited the Iraqi crisis, the new requirement that Latvia's fuel traders hold reserves, an exceptionally harsh winter, plans by Lithuania's oil refinery to halt production for about a month and the imposition of tighter fuel quality requirements by Latvia's government.

Sakne stressed that Latvia will have to turn to other suppliers when Lithuania's Mazeikiai – which supplies more than 50 percent of oil products to Latvia – undergoes major repairs this spring.

Interestingly, the new fuel quality requirements may rule out Russian and Belarus producers, while supplies from Finland, including from the Porvo refinery, are hindered by ice on the Baltic Sea.