Fuel prices, because the discount from the excise duty cut is not seen immediately

A few days ago the Government launched a new decree-law to extend the cut of excise duties on fuels, a measure introduced last March 19 and then extended several times to counter the increases in petrol and diesel prices, which soared following the outbreak of the conflict in Iran and the closure of the Strait of Hormuz. Despite the reconfirmation of the provision, however, as of 5 May the average price of petrol was 1.926 euros/l and that of diesel remained at 2.044 euros/l, according to Mimit findings. Data which, at least at first glance, does not seem to reflect the discount promised by the excise duty cut. A dynamic that had already emerged in mid-March, when the first measure linked to the current fuel price crisis was adopted, for which many consumers had the opportunity to directly see how the discounts provided by the measure were not immediately reflected in the prices displayed at the pump. Even then, it took a few days after the decree came into force for distributors to adapt and prices to actually begin to fall. We have explored the reasons for this delay with Gabriele Masinimanaging director of Daily relaya newspaper specializing in the energy sector.

the inventory problem

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When the cut in excise duties on fuel became effective on March 19, many motorists found themselves faced with prices at the pump for a few days that showed no signs of falling despite the measure. The main reason behind this period of latency between the decree-law and its effects is to be found in the management of the fuel reserves of individual operators, as underlined by Masini. “In general the effect is not immediate, especially when the excise duty cut is decided, due to a problem of stock: when the petrol station attendant has petrol in the tank purchased with the high excise duty, therefore also paid with the high excise duty, if this immediately adjusts the price by lowering it by 20-25 cents per liter (as happened on 19 March), he finds himself sell at a loss your product. In theory, the petrol station attendant must therefore wait to empty the tank and then apply the discount when he fills the tanks again”. The time that passes between the entry into force of government measures and the actual discounts on fuel is therefore motivated by the need of operators to dispose of the product purchased before the excise duty cut at prices that have not been reduced. A dynamic that, in the past, a way had been found to avoid: “In 2022, when Draghi introduced the excise duty discount, he inserted a mechanism into the law specific: petrol stations simply had to inform the Customs Agency how much full excise petrol was still present in the tanks. This allowed the discount to be applied immediately, with the guarantee that the Customs would reverse the difference once the full rate was restored. This time the mechanism was not replicated, so many managers had to wait until the product purchased at full excise duty ran out before applying the discount.”

THE OTHER CAUSES

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However, the need to dispose of the fuel purchased at full price before offering the discount to consumers is not the only cause of the differences between the objectives of the Government’s measures and the actual prices at the pump. In fact, especially in less served locations, the individual operator could decide to continue selling fuel at high prices because it essentially lacks competing distributors in the surrounding areas. Masini also focuses on this issue: “The fuel market is free. In Italy there are 20,000 points of sale and hundreds of different operators and it is nowhere written that the petrol station or the oil company must apply this discount. The operator can choose to continue selling the fuel at the old price, while if there is a competitor who instead lowers the price there is pressure to reduce prices. If instead the operator finds himself in a situation of natural monopoly, so he manages the only point of sale in the area, he may not even apply the excise tax cut and no one can tell him anything. It’s not illegal or irregular“. The excise duty cut therefore does not always represent an immediately and everywhere effective solution, however, it brings with it some side effects: “A statistic came out last week – underlines Masini – according to which the prices of petrol and diesel after taxes have risen more in the European countries where excise duties have been cut. That is, if the State cuts excise duties, one way or another not all of that discount reaches the consumer, but part of it is dispersed among the operators and fuel distribution companies.”

THE INCREASE IN THE PRICE OF PETROL

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If the first measure introduced by Palazzo Chigi in March had provided for a horizontal discount of around 20 cents per liter for both petrol and diesel plus VAT, i.e. around 25 cents, the latest extension which came into force on 2 May has instead differentiated the excise duty cut for these two fuels, with different repercussions on prices: around 6 cents per liter for the gasabout 25 for diesel considering the sum of the excise duty cut plus VAT. And it is precisely this reduction in the discount on petrol that has determined the recent increase in the price of “green”, as Gabriele Masini also points out: “With the reduction in the discount on the excise duty on petrol on 2 May, the price of petrol jumped by almost 18 cents per litre. It took a few days to see the effect at the pump, as with the initial cut, because the sellers who operate according to the stock rule did not immediately apply the increase. Maybe they had petrol purchased with the low excise duty and they sold it with the low excise duty and therefore they did not apply the increase immediately. This is why the full effect of the increase in the excise duty on petrol was seen in four days. However, I think we are more or less there now, the average prices have reflected this increase in the excise duty”. The cut in excise duties on fuel will remain active until May 10th, according to what is contained in the latest decree-law, and will however be extended until May 22nd, as already publicly announced by government representatives. Petrol and diesel prices should therefore not see fluctuations directly linked to government measures in the coming days, with any rises and falls in prices which would therefore be attributable to the constant market variations of recent months.