Oil Price Surge Drives Up Fuel Costs Across Euro Area

Rising oil prices have driven up fuel costs in the euro area, contributing to higher energy inflation. Since the outbreak of the conflict in the Middle East, Brent crude has surged past $138 per barrel, with diesel prices following suit. The prices for refined diesel rose even faster than those for crude oil, peaking at nearly double the level seen just weeks prior.

According to data from the European Commission and ECB calculations, the pass-through of oil price increases to pump prices is generally fast and complete within one or two months. However, in relative terms, retail prices increase less than crude prices due to fixed cost components such as taxes and refining margins.

In the euro area, diesel prices at the pump increased by around 34% between late February and early April, while crude oil prices rose by over 90%. The refining margin component amplified the impact of oil price shocks on fuel prices, household budgets, and inflation. As a result, retail diesel prices averaged €2.18 per liter across the euro area compared with €1.63 per liter in late February.

The recent escalation of the conflict has pushed pump prices back up, with refining margins playing an important role once again. In the third week of July, diesel prices at the pump reached around €1.98 per liter, highlighting the ongoing impact of oil price fluctuations on consumer costs.