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Voice Warsaw WEEKLY NEWSMAGAZINE How Crude... Andrzej Ratajczyk2006-04-26 Soaring oil prices not only worry drivers, who must pay more at the pump, but it also creates a problem for the entire economy and may negatively affect Poland's GDP growth. Oil prices on international markets have been growing since the start of December when the price per barrel was about $60. Now the price is 20 percent higher. On April 20 the price of oil on the New York commodity exchange reached $72.50 per barrel. The price of Brent oil from the North Sea rose to a record $74 per barrel. The latest increases are due to lower-than-expected fuel inventory levels in the United States, fears of an armed conflict with Iran and unrest in the oil basin in Nigeria. The main cause is growing fears that the nuclear ambitions of Iran will not be restrained in a peaceful manner and that an armed conflict will erupt. Iran is the world's fourth-largest exporter of oil. The administration in Washington has openly accused the Iranian authorities of secretly preparing for the production of nuclear weapons. With the latest increases, oil prices broke their August 2005 all-time high of $70.85 per barrel, then caused by the havoc wreaked by Hurricane Katrina in oil installations in the Gulf of Mexico. Many rigs have never been rebuilt. However, if the current prices of the raw material are adjusted to inflation, it will turn out that they are still at a much lower level than during the Iranian revolution of 1979. At the time, the price per barrel was $80-a level that may soon be reached as well. Forecasts for the short term provide for an increase in the price of oil to $75. But if there is a conflict in Iran, experts say the price of oil may even reach $150 per barrel. The rapidly growing prices of oil and petroleum products can already be felt at Polish gas stations where the average price of gasoline per liter has exceeded zl.4. At some stations, it is even more expensive-costing 10-20 groszy more per liter. Poland's largest fuel company, PKN Orlen, increased its wholesale prices for gasoline by zl.13 per 1,000 liters as of April 20, and diesel fuel went up by zl.22. This was the 50th gasoline price hike at Orlen since the start of the year and the 43rd increase in the price of diesel. At the same time, gasoline has gone down in price 24 times and diesel fuel 29 times since the start of the year. The latest increase in wholesale prices inevitably means a rise of retail prices as well; its date and scope will be determined by gas station owners. There is every indication that fuel prices in Poland will continue to rise for some time to come. The approaching vacation season and intensified traffic will be conducive to increased demand for gasoline, leading to higher prices. Fuel market expert Andrzej Szcz niak says prices at the pump in Poland may continue to rise for another two to three weeks. "In some regions of the country, gasoline will reach a level of zl.4.20 per liter," Szcz niak says. "During the vacation season, gasoline prices will be around zl.4.30 per liter." Generally, over the next few months, fuel prices are unlikely to fall in Poland, as especially the Ministry of Finance plans to increase excise tax on gasoline. This will actually be a return to the original rate in effect until September 2005. Former Finance Minister Miros aw Gronicki cut it in response to growing prices of the raw material on international exchanges. Considering the planned increase in excise tax, in 2007 drivers will probably have to pay much more for gasoline than now. "If there is an intervention, war or an embargo on Iran, various things may happen," Szcz niak says. "If not, the market will calm down because this fever has been in progress for long enough so it must peter out some day. The price of gasoline in Poland at zl.5 per liter is unlikely because oil would then have to cost around $80-90 per barrel-of course, all this provided there is no major political unrest or war in the Persian Gulf." The record high prices of oil influence the quotations of listed companies. Investors are aware that expensive raw materials mean higher costs for many companies, including chemical corporations and airlines. That's why their stock is going down in price. In contrast, shareholders of oil corporations are in a much better position. Their earnings grow when oil is more expensive. Due to this, top gainers among WSE-listed companies have recently included PKN Orlen, MOL and Lotos. All gained consistently from one session to the next. Analysts say the growing quotations of Polish fuel companies are not necessarily justified. For the time being, Polish refineries have not profited from the surge in oil prices. Orlen does not extract its own raw material at all, and Lotos extracts only small quantities, so these companies do not directly earn when oil prices rise. The most important factor is refinery markup, which has not risen that much. Dawid Piekarz, a spokesman for PKN Orlen, says the increased price of oil additionally brings down the corporation's retail markup. "We cannot translate the oil price increase directly into pump prices because this would hurt demand and discourage customers," he explained. Even though the Polish economy does not rely on oil as heavily as other countries in Europe-this raw material accounts for only 21 percent of total energy consumption in Poland-its rising prices on international markets are unfavorable to Polish companies. The problem of more expensive oil is especially acute for transportation companies. If oil prices continue to run high in the next few months, inflation may increase, though economists predict no major growth-due to factors such as further appreciation of the zloty. Expensive oil is more important to the country's economic growth, which might slow down then. Beneficiaries of higher oil prices in Poland mainly include producers of LPG and LPG installations for cars. In 2000, there were about 590,000 LPG-powered vehicles in Poland. Five years later their number was a few times larger: 1.77 million at the end of 2005, according to estimates by the Polish Liquefied Petroleum Gas Organization (POGP). This was the largest number in Europe. Elsewhere around the world, only South Korea has more LPG-powered cars. (The Warsaw Voice)

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