Is the Price of Gasoline Gathering Momentum?

How is the price of gasoline formed in the market?

First, let’s look at the price of gasoline in those countries in the region that are generally considered oil-importing countries. I should note that the price of gasoline in Armenia is the highest compared to our neighbors and EAEU countries. However, the reasons for this are mainly transport costs and the fact that Armenia is not an oil-producing state. At this moment, calculated in AMD, the price of AI-95 premium class gasoline in Georgia is about 465 AMD, and in Armenia, 530 AMD. In this material, we will explore what impact gasoline importers actually have on gasoline pricing. Chart 1.

Chart 2 shows the total volume of gasoline imports in millions of kilograms. As can be seen from the chart, oil product import volumes remained almost unchanged from 2010 to the beginning of 2019. Starting from 2019, a continuous and steady growth in oil product imports was recorded. In 2017, 200 and 140 million kilograms of diesel fuel and gasoline were imported respectively, and in 2023, already 300 and 225 thousand kilograms. Total oil product imports have grown 1.5 times over the last 5 years. It is also noteworthy that during 2023, almost no quantitative growth in oil product imports was recorded, and from the middle of that year, the growth has a negative trend. Oil products are an important energy source providing transportation and industrial activity. When a country imports more oil products, it generally means that internal energy demand is increasing. This can be an indicator of a growing economy, evidencing an increase in consumer spending, entrepreneurial activity, and industrial production.

Chart 2.

Chart 3 shows the change in the price of gasoline. Prior to the growth recorded in 2023, the price of gasoline was at its highest in April 2022, when 1 liter of premium gasoline cost 540 AMD. At the end of 2022, the price of premium gasoline dropped to 350 AMD for 1 liter, which was recorded in February 2023. An increase in the price of fuel was continuously recorded in 2023. We will discuss the reason for this increase next. From 2024, the price of gasoline began to decline, as we predicted in November 2023, when the highest gasoline price of that year was recorded. However, changes in the global oil market did not allow the price of gasoline in the domestic market to drop to the predicted level, and at this moment we are on a plateau. However, the global change in the price of oil products did not allow gasoline in the domestic market to drop to the predicted level, and currently it is at a plateau. Chart 3.

Below are the import prices of gasoline and diesel fuel. It is calculated by dividing the import value and physical data of the given month, which yields the import value of a kilogram of gasoline in US dollars. The resulting figure was divided by the density of gasoline and diesel and multiplied by the average US dollar to AMD exchange rate of the given month. Of course, the resulting figure has a certain accuracy problem, since the density of oil products can change depending on the temperature, and the selling price of the dollar in the domestic market must be taken into account, rather than the average exchange rate. However, the dynamics of this indicator can give a clear idea of how much the price of oil products at the border, which our economic entities purchase, differs. It is the price of gasoline and diesel fuel purchased at the border that shapes the price of gasoline in the domestic market.

Chart 4.

Let’s also look at oil product imports by country. 76.6 percent of diesel fuel is imported from Russia, 11.9 percent from Iran. The interesting thing is that while a liter of gasoline has a very low price in Iran’s domestic market, it is imported to Armenia at almost the same price as from Russia. This may have political reasons. The price of oil products coming from Russia is high because transport costs are high, while we have a direct border with Iran. Let’s also note that Georgia also carries out a significant part of its gasoline imports from Russia. Chart 5.

The last chart shows the dynamics of the import price and the market price of gasoline for diesel fuel and gasoline. As can be seen, the import price and the market price have a high degree of correlation. In other words, Armenia’s domestic market is quite competitive and cannot dictate the internal price. The price at which the economic entity buys the oil product at the border is comparable to the price the ordinary citizen pays.

Here, the domestic market price was calculated according to the consumer price index database, which was multiplied by the domestic market oil product prices recorded at the end of October 2023. Both indicators presented in the chart, the price at the border and in the domestic market, have a margin of error. This is the reason