Germany cuts fuel tax May 1 in effort to curb high pump prices

Germany is set to introduce tax cuts on road diesel and gasoline from May 1 in an effort to curb prices at the pump which have risen to new heights following the disruption to global oil supply from the Iran-US war.

The 2nd Energy Tax Reduction act is expected to stay in place until June 30 and cut the energy tax on road fuels by 14.04 cents per liter each.

Pump prices for road diesel and Super unleaded 95 RON gasoline were recorded at $2.18/liter and $2.14/liter April 27, the latest data from the EU Commission Weekly Bulletin showed. This marks a 15 cent/liter increase for diesel compared to the average in February, collated by S&P Global Energy CERA. Gasoline prices at the pump saw no change from February to April.

"As energy tax is only one component of the fuel price, it remains to be seen whether the tax reduction will be reflected in prices for end customers," the consulting firm RSM Ebner Stolz said in a note April 27.

Early indications suggest the policy may take time to feed through into physical demand. One market source said they had seen "absolutely zero" impact so far, adding that it was too early to assess any effect on diesel or 50 ppm demand, with clearer signals likely only emerging next week. 50 ppm gasoil serves as a heating solution in Germany, as well as Switzerland.

"It will be more interesting next week because that is when Germany is introducing the tax cut on fuels," one German diesel importer said. "We expect more demand to come because of that."

Higher demand could provide some relief for operators in the Northwest European market who have seen demand slump amid record-high prices in March and April. In the wholesale diesel segment, Platts, a part of S&P Global Energy, assessed the price of a 30,000 metric ton cargo of diesel delivered into ARA at $1,345/mt April 30. On average, April priced 82% higher than February at $1307.02/mt.

This comes at a moment where the European diesel market is seeing weaker fundamentals as high prices have attracted volume from the US, West Africa and the Red Sea and lower physical Brent prices improved refinery margins.

"Margins have considerably improved," one trader close to the market said but added, "everyone brought very expensive crude, so margins may not be good for a while. Many considered run cuts but have decided against it now."

Gasoline may see weaker effect

Meanwhile, tax cuts could also stall the demand destruction effects of the high pump prices in the gasoline market, which has seen a weaker impact from the Middle East conflict on the European market than diesel.

On April 30, Platts, part of S&P Global Energy, assessed the front-month FOB AR Eurobob barge at $1143.25/mt, down by 50 cents/mt on the day, with the May/June spread assessed at $39/mt on the day, reflecting backwardation in the European gasoline markets.

High stock levels prevented gasoline markets in Europe from becoming too tight, even though the market has transitioned into more expensive lower-RVP summer specification gasoline ahead of the summer driving season. According to Insights Global data, gasoline stocks in the Amsterdam-Rotterdam-Antwerp area rose 3.33% to 1.149 million mt on the week to April 30, which is just below 1.32 million mt recorded in the week to Feb. 26, right before the conflict started.

A Europe-based trader source said, the market "definitely seems strong," adding that "driving season is picking up despite higher prices at pump." They added that European countries "are keeping product [domestically] for local demand" and "war supply risk."