Why Maltese are paying the second highest fuel prices in Europe

Fuel in Malta is the second most expensive in the EU as price stability risks reversing months of below-average prices for petrol and diesel.

With the onset of the COVID-19 pandemic and the global economic slowdown, the price of oil started to slide dramatically in March, eventually reflecting in lower fuel prices in many countries, but not Malta.

The reason for this is the price stability policy adopted by Enemed, the government-owned fuel importer, that buys fuel through long-term hedging agreements.

Petrol and diesel prices were last adjusted in August last year and although fuel in Malta was below the EU average for several months, the situation since March has changed dramatically.

A comparison conducted by MaltaToday using the weekly fuel prices published by the European Commission, shows that by 27 April, the price of petrol in Malta at €1.41 per litre was the second highest in the EU. Only the Netherlands had a higher pump price at €1.46 per litre.

On 9 March, Malta was joint in ninth place with Sweden but kept climbing the table as petrol prices dropped in other countries.

The same pattern was observed for diesel. By 27 April, the price of diesel in Malta at €1.28 per litre was the second highest in the EU after Italy.

At the start of March, Malta ranked 10th but started climbing the league table as diesel prices in other member states dropped.

From below average to significantly higher

However, although motorists in Malta have not felt the downward impact of cheaper oil, a long-term analysis of prices shows that petrol and diesel have consistently been lower than the European average in the previous seven months.

The last time fuel prices were revised was in August last year, when petrol started being sold at €1.41 per litre and diesel at €1.28 per litre. The price has remained stable since then.

The analysis shows that the petrol price in Malta was generally at par or just below the EU average for seven months.

The largest differential was in the first two weeks of January when petrol in Malta was 2% cheaper than the European average.

However, since 9 March petrol in Malta went from being 3% more expensive to a whopping 20% higher than the EU average by 27 April.

Diesel in Malta was generally cheaper than petrol when compared to the EU average price.

Between August last year and February, diesel in Malta was on average between 3% and 4% cheaper than the EU average, peaking at 7% below the average in the first weeks of January.

However, the trend started being reversed in March. Diesel went from being 6% more expensive than the EU average on 16 March to almost 18% higher on 27 April.

Enemed on price stability

Motorists in Malta are not benefitting from the spate of cheaper fuel internationally because Enemed does not buy at current market prices.

A spokesperson for the government company told MaltaToday that in line with its shareholder’s policy of providing price stability, Enemed does not buy its fuel requirements with spot prices.

“For the last 104 weeks with the exception of these last couple of weeks the strategy of stability was successful in that the prices of fuel in Malta were always below the EU Average. Should Enemed opt to buy spot, pump prices will change on a weekly or daily basis as is the norm in all European countries,” the spokesperson said.

The company said it bought its fuel through hedging agreements, months ahead depending on whether futures are in ‘contango’ or ‘backwardation’.

Contango is the technical term used when future prices are higher than the current market price, while backwardation means the future price is lower than the spot price.

“Normally Enemed tries to source fuel when the market is in backwardation, which means that the price in the future is lower than the spot price. At present the market is contango,” the spokesperson said.

The big question is whether the current low prices will persist, which means that any relative gains made by Maltese motorists through price stability over the past months could be reversed in the blink of an eye.