Bank Austria Economist: Refinery Margins Are Driving Fuel Prices Above Crude Oil Quotes

How the Crack Spread Determines the Price at the Pump

The mechanism behind the decoupling is referred to in technical language as the crack spread: the difference between the price of a finished product such as gasoline or diesel and the costs of the crude oil used to produce it. If this spread rises without a corresponding rise in crude oil quotes, it means that refineries are raising their selling prices more than crude oil prices would justify.

Several factors are at play in the current environment. On the one hand, the geopolitical situation, particularly developments in the context of Russia, is influencing price movements on international energy markets. On the other hand, seasonal maintenance work at European refineries as well as logistical bottlenecks are affecting regional premiums.

For the domestic economy, the crucial question is how long this margin premium will last. Competitors and antitrust authorities are monitoring the development; a more prolonged spread could trigger political reactions, such as discussions about price caps or relief measures at the pump.

Implications for ECB Monetary Policy

Bank Austria is part of the UniCredit Group. Its analyses on inflation and price developments at gas stations are picked up both by domestic media and international agencies, as the Republic of Austria, as a small, open market, is disproportionately dependent on energy imports.

The European Central Bank has repeatedly emphasized in recent years that energy prices have a significant impact on overall inflation. In the current monetary policy environment, the ECB Council pays particular attention to indicators such as the deposit rate and core inflation. A persistent margin effect on fuels would lead to upward revisions in inflation forecasts.

Consumers feel the development directly when refueling: Even if crude oil becomes cheaper on international exchanges, the price at the pump often remains stable or falls only with a delay. Pudschedl sees this as a sign that competition in the Austrian fuel station market is not sufficiently neutralizing the margin premium of refineries.

What Consumers Can Expect

UniCredit Bank Austria recommends in its analyses close monitoring of crack spreads and seasonal maintenance windows. Only when margins normalize again can a noticeable pass-through of falling crude oil prices to end customers be expected, according to Pudschedl.