The reasoning behind gasoline being viewed as inexpensive by many individuals is substantiated. - Cost of Gasoline Perceived as Low due to Relative Affordability Compared to Other Expenses
Fillin' Up: Breaking Down the (Apparent) Cheapness of Gasoline
These days, pumping up your car is more budget-friendly than it's been in a while. Yet, it's still more expensive than it was half a decade ago. So, is fuel affordable or costly? Well, that depends on your standpoint, and factors like habit and personal beliefs come into play. Here's a breakdown:
The Numbers
In May, the average cost for a liter of Super E10 fuel in Germany was 1.68 euros, according to the ADAC. Diesel was a tad cheaper, coming in at 1.56 euros. Compare that to the average price for 2024, which is significantly higher, and you'll see it's the cheapest it's been in years—particularly compared to 2022 and 2023 when both fuels peaked above the two-euro mark.
But is the current price the bargain it seems? Not always. In 2020, diesel even dropped below the one-euro mark, meaning both fuels were close to 40 cents cheaper at that time than they are now. Since 2010, fuel prices have been, on average, more than 20 cents higher.
However, comparing prices without considering inflation might not paint an accurate picture. After all, other essentials like a restaurant meal or a loaf of bread have also gotten more expensive over the past decade. But when you adjust fuel prices according to the general rise in prices (over 60% in the past two decades), it turns out that diesel would have been even more expensive than it is now in 12 out of the last 25 years. Likewise, petrol would have been higher in 18 of those years.
So, Why the Price Fluctuations?
To understand fluctuations in fuel prices—unlike most other goods—you must examine their composition. The cost breaks down into three components: oil price, taxes, and processing/distribution.
The oil price is a significant factor behind these swings. Over the last five years, it's ranged from over 100 euros to less than 40 euros per barrel (159 liters). However, the exact proportion of oil price found in a liter of fuel is difficult to determine, as various products are produced from oil. Roughly speaking, the current oil price translates to about 36 cents.
Taxes, consisting of energy tax, VAT, and CO2 levy, account for the largest part of 105 cents for Super and 86 cents for Diesel. More than half of this is energy tax, which has been stable since 2003 (except for a brief period during the "Fuel price brake" in 2022). The remaining portion is for processing, distribution, and the profits of mineral oil companies. These may continue to increase along with rising costs for labor, energy, transportation, etc.
The Experts Weigh In
"Fuel isn't cheap, these days," says Christian Laberer, a fuel market expert at the ADAC. "By the end of 2025, we're looking at one of the four most expensive years for fuel fills. When considering inflation, it softens the blow somewhat, but the prices still have room to drop—especially in wholesale and refinery margins. There's still a significant amount of money stuck in these sectors compared to before the disruptions caused by the Ukrainian conflict."
But why does the price still feel palatable to some?
According to Laberer, peoples' perception of cheap fuel is a result of getting accustomed to it. Even during times of much higher prices, he's warned about this adaptation. People may find current prices relatively affordable because they've seen much worse just a short while ago," he reasons. "Over time, people get used to the new levels and are almost grateful when it's only 1.70 instead of 2 Euros per litre. It's like going from a cold room into a cool one—that still feels warm in comparison."
Fuel, Traffic, Adac, Ukraine, Oil Prices, Inflation, Munich, E10, Car, Bread
Enrichment Data:
Factors Influencing Perceived Affordability of Fuel
Perception of fuel affordability is subjective and is influenced by factors like:
- Global Supply and Demand: Changes in supply and demand significantly impact fuel prices, causing them to fluctuate. During periods of low supply and high demand, prices tend to rise, making fuel more expensive[2][4].
- Geopolitical Factors: Political instability in oil-producing regions can disrupt supply chains, resulting in price increases and affecting fuel affordability[2].
- Economic Conditions: Economic conditions like recessions or growth impact fuel consumption patterns and prices—during times of economic growth, increased fuel demand often leads to higher prices[2].
- Government Policies and Taxes: Taxes on fuel vary by region and country, making fuel more or less affordable. For example, higher taxes on diesel in the U.S. make it more expensive compared to gasoline[3][4].
- Driving Habits and Vehicle Type: The type of vehicle (e.g., hybrids or electric vehicles) a person chooses can affect perceived affordability because more fuel-efficient vehicles reduce fuel costs over time[1][2].
Impact of Inflation on Fuel Costs
Inflation effects fuel costs in the following ways:
- Price Increases: As inflation rises, the cost of extracting, refining, and distributing fuel increases, contributing to higher fuel prices[2][4]. This contrasts with some goods that may not experience as fast price growth.
- Relative Affordability: Inflation can make fuel appear less affordable compared to goods that do not experience as significant price increases. For example, if food prices rise less than fuel prices during an inflationary period, fuel may become relatively more expensive[5].
- Long-term Impact: Inflation can lead to a decrease in purchasing power, making all goods, including fuel, less affordable over time. However, the impact on fuel is often more pronounced due to its volatile pricing[4].
- Shift to Alternatives: High inflation and rising fuel prices may prompt consumers to seek more affordable alternatives, like electric vehicles, which can provide stable charging costs[4][5].
In conclusion, the perceived affordability of fuel is influenced by global supply and demand, geopolitical factors, economic conditions, government policies, and personal driving habits. Inflation results in increased fuel prices, making fuel relatively less affordable compared to some other goods, thus encouraging consumers to seek more cost-effective alternatives.
- The ongoing debate about the affordability of fuel revolves around several factors, including the industry's employment policies, which significantly impact the overall production and distribution costs.
- With the fluctuations in oil prices playing a crucial role in determining the price of fuel, it is worth noting that the finance sector, specifically investment decisions made by energy companies, can also influence fuel affordability by affecting oil prices.
