In order to provide price stability for the benefit of businesses and the economy in general, Enemed does not buy its fuel requirements with spot prices but rather through hedging agreements, Enemed Executive Chairman Kevin Chircop told The Malta Independent on Sunday.

Chircop was replying to questions sent by this newsroom to Enemed, which asked whether given the fact that the price of oil has dipped to an historic new low they would be reducing the prices for petrol and diesel in the near future.

Oil prices plummeted to an historic low over the course of the last week, with the price-per-barrel actually dropping into negative territory on the West Texas Intermediate (WTI), the benchmark for US oil, at one point. Brent Crude, the benchmark used by Europe and the rest of the world, also plummeted – although not to the same lows of its American counterpart.  A bounce-back towards the end of the week saw the price improve to $21.44, but this is still very much on the low-side.

The price drop has led to calls, including from the Nationalist Party, for a price drop in petrol and diesel.  Earlier in April – prior to last week’s tumble – the PN said that a 30c drop in the price of petrol and diesel was possible and indeed should be done.

The importation, distribution and wholesale of petroleum products falls into the hands of Enemed, which was established in 2014.

Answering this newsroom’s questions, Enemed Executive Chairman Kevin Chircop noted that providing information as to whether prices would be reduced would be detrimental to the company “since it will be helping our competition plan their future strategic moves”.

He also noted that a price change can only be recommended by Enemed, and must ultimately be approved by the Regulator for Energy & Water Services (REWS).

Chircop continued by delving into further technical details as to how Enemed sources its fuel requirements and the costs which generally constitute what the price which the general public would see at fuel stations.

“In line with our shareholders policy of providing price stability for the benefit of businesses and economy in general, Enemed does not buy its fuel requirements with spot prices but through hedging agreements, months ahead depending whether futures are in contango or backwardation”, Chircop explained.

In simpler terms – backwardation refers to when the price in the future of a certain asset is lower than the prices at which that asset would be trading at in the present. Conversely, contango refers to when the price of that asset in the future is higher than the price of the same asset in the present.

Chircop explained that normally Enemed tries to source fuel when the market is in backwardation.  At present, however, the market is in contango, he noted.

“It should also be noted that for the last 104 weeks with the exception of these last couple of weeks (due to the impact of Covid-19) the strategy of stability was successful in that the prices of fuel in Malta were always below the EU Average”, Chircop said.

Furthermore, Chircop noted that there is a difference between the price of crude oil and of refined products.  Although they would follow the same pattern, he explained, refined products are affected by more than the demand and supply; seasonality, the availability in the region sold, the number of refineries, the quality of the refined product, the logistics costs, the size of ships for transportation, the availability of ships in the Mediterranean, the discharge points, and the storage available are all factors which come into play.

He further explained that there are other elements which make up the eventual retail price of the fuel at the pump – elements which are fixed costs which, irrespective of the price of oil, have to be borne by the motorist – noting that he wanted to clarify the notion that the volatility in the price of crude oil is not directly proportional to the price at the pump.

These fixed elements include Excise duty and VAT, FX effect between Euro and US Dollar, Fuel Pump Mark Up, the regulator charges, the mark up for importer, and the cost of renewable content as per EU regulation amongst others.  In total, these fixed costs make up more than 50% of the price at the pump, Chircop explained.

The price of petrol in Malta currently stands at €1.41 per litre for petrol and €1.28 per litre for diesel. The last revision in price was in August 2019, when prices increased by five cents.