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Economist: fuel prices to exceed lat in mid-2011

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Fuel prices in Latvia could hover around 95 santims in the middle of the year, but in case of any disruptions in oil extraction, fuel costs could exceed one lat, according to AS SEB banka macroeconomic expert Dainis Gašpuitis (Gaspuitis).

The expert explains excise tax on fuel will be increased on June 1, but in terms of price fluctuations the effects will be felt after about three months, due to introducing fuel crisis reserves.

In this case, in mid-2011 when the tax and reserve effects will come into force, fuel price will climb for about five santims. Moreover, it could already fluctuate around 95 santims. However, if the chaos keeps escalating and disruptions in oil production take place, any future prospects will be unpredictable. Considering the tax and reserve impact, fuel prices might soar, even exceeding one lat, Gaspuitis says.

Fuel price forecasts coincide with the assessment of political processes in North Africa and Middle East, as well as its potential shift to other authoritarian states.

The rapid oil price gains prompt talks on how much more the global economy can withstand.

It is possible that due to their continuous rise, the consumption and growth is undermined, resulting in price drop to lower levels, the expert indicates.

However, he acknowledges that in any case fuel will become more expensive, yet the extent of the surge will be determined by many unpredictable factors.

The only way to reduce this impact is to improve the efficiency of oil resource consumption. Most likely, more active government involvement is necessary to promote this issue and find solutions, believes the analyst.

In the longer term, gas consumption and usability will grow, because problems with this resource availability are not expected in near future.

The already spiking fuel prices reflect the tax rise, political instability in North Africa and the Middle East, as well as speculations. Consequently, the price of fuel is coming close to 90 santims.

The political crisis in the region is only starting to escalate, and it is still difficult to determine its possible spread to other regions or countries; besides, particular concerns arise from the likelihood of unrests in major oil-exporting countries, such as Saudi Arabia, United Arab Emirates and Iran, the expert emphasizes.

So far, Saudi Arabia could compensate the oil shortage due to the riots in Libya, but the available capacity is limited and no one can guarantee that the unrest does not excel there as well.

If these revolutions can ensure a reasonable power changeover process, which does not cause significant oil production disruptions, it is possible to expect that oil prices will stabilize.

Western countries will put a lot of effort for that to happen, because it undermines their economic growth; however, it is rather unpredictable, therefore any substantial price reductions cannot be expected in the short term, the expert underlines.

Internal battles over oil extraction revenues are yet to come and there is little hope that this country will manage to revive the principles of democracy. Therefore, fuel prices in Latvia will continue to soar, concludes Gaspuitis.

As reported, the price of 95-octane fuel at Latvija Statoil refuelling stations rose by 1.5 santims – from 87.9 santims to 89.4 santims per litre over the week.

While the price of diesel at Latvija Statoil stations increased by one santim – from 88.9 santims  to 89.9 santims a litre.


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