The Competition Council (KP) urges fuel traders in Latvia to not use the situation with fuel prices and not artificially inflate prices. KP plans to commence monitoring of the fuel market to observe how prices are calculated and what affects retail fuel prices.
At the same time, the fuel market is very transparent and traders can easily follow competitors’ prices to avoid losing clients and implement so-called intelligent adaptation. This is why similar prices or simultaneous price changes on the market cannot serve as evidence of a cartel agreement.
Following the rapid and simultaneous fuel price increase in Latvia, which has already had a major impact on consumers, KP explains that fuel prices are mostly affected by major changes with oil and fuel wholesale trade, as well as the exchange rate of the US dollar and other factors.
One of the factors that affect fuel prices for consumers in Latvia is the price of oil on markets around the world, as well as the wholesale price of the products – diesel fuel and petrol.
The price of oil has surged sharply since start of Russia’s attack on Ukraine – from 95.53 USD/barrel on 25 February to 123.70 USD/barrel on 8 March.
The price is dictated by the situation on the market – the synergy between supply and demand. Latvian fuel traders procure fuel on foreign markets, where prices are calculated based on world prices and US dollar exchange rate. This is why retail prices regularly change depending on the changes on the world market. Retail and wholesale fuel price will continue changing depending on oil and petrol product prices in Europe and the world, as well as currency exchange rates and other factors, KP explains.
If global and wholesale prices increase, retail prices of petrol products increase in Latvia, neighbouring countries and the rest of the world.
For example, on 10 March the average diesel fuel price in Latvia was 1.728 EUR/l. In Lithuania it was 1.761 and in Estonia it was 1.836.
Additionally, the price for consumers is affected by market transparency. Fuel prices are visible at petrol stations and are freely visible to everyone. Updates are also posted on the internet.
Considering prices are transparent and the product sold – fuel – is a homogeneous product equal for all traders, and considering the principles of commerce are similar everywhere, the cost structure forms similarly. Thereby the situation for fuel traders in Latvia includes mutual observation and implementation of parallel activities or intelligent adaptation.
Both the economic theory and court practice in the European Union indicate that following your competitor’s prices cannot be considered evidence of a cartel agreement.
Before declaring a cartel agreement, it is first necessary to uncover mutually coordinated activities between businesses. This is why parallel activities like price change across all petrol stations cannot be considered a violation of the Competition Law, because such activities can be done without any mutual agreement on limitation of competition.
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Chairman of Latvian Competition Council Juris Gaiķis comments: «Considering the market and its transparency, there is a risk of some fuel retailers may use the market changes for their own benefit. For instance, if fuel procurement price goes up, some traders may raise the price due to objective reasons, but another trader may adapt prices and follow their competitor’s example and raise prices without any economic justifications for already procured fuel.»
«KP understands the high levels of confusion and commercial risks on the fuel market and invites fuel traders to not use this situation and not artificially increase retail prices. At the same time, we would like to report that KP has plans to commence monitoring of the market to study how prices are formed and what factors affect retail fuel prices,» KP chairman explains.
Latvian Competition Council invites fuel traders to not artificially inflate prices
