Recent Developments in Oil Prices and Reflection to Pump Prices in Turkey

DR. EROL METIN

SEM ENERGY, LOGISTICS AND SUSTAINABILITY

IAEE CONFERENCE 24 -27 MAY 2015 ANTALYA

Price Movements; Brendt Crude Futures

Peak 145 $/bbl

Economic Recovery

Global Financial Crises

Demand growth

Lowest price 46$/bbl

2015 : recovery from lowprices

Source : www.iea.gov; www.nasdaq.com

Supply demand balance and US crude production vs imports

Source : www.iea.org www.eia.gov www.vox.com

Correlation between product prices and inflation and growth

Source : Worldbank, Turkish Ministry of Finance

Currency effect on reflection of oil prices to Turkish market

TL/bbl$/bbl

Stronger US$ vs TL, in late 2014 and 2015, has partially suppressed the positive effects of decreasing oil prices .

Average increase in Crude in 2015• 25 % in US$• 47 % in TL

Refinery Prices vs Platts Quotation

Ex refinery fuel prices have been referenced to Med Platts Quotation for many years. The price movements have been usually adjusted to remain 1-3% CIF - $/TL frame

Breakdown of Pump Prices

65%57%

51%

28% 32%28%

Reflection of product price movements to pump prices

Breakdown of pump prices

DATE EX

REFINERYSCT VAT

TOTAL OF

DUTIES

DISTRIBU

TION

MARGIN

AVG

PUMP

PRICE

2005 0.552 1.364 0.388 1.752 0.242 2.546

2006 0.695 1.364 0.425 1.789 0.303 2.786

2007 0.705 1.382 0.441 1.823 0.361 2.888

2008 0.853 1.484 0.491 1.975 0.391 3.219

2009 0.724 1.585 0.481 2.066 0.363 3.155

2010 0.877 1.892 0.562 2.453 0.350 3.682

2011 1.277 1.892 0.614 2.506 0.390 4.190

2012 1.438 1.955 0.683 2.638 0.410 4.480

2013 1.459 2.177 0.729 2.906 0.415 4.780

2014 1.574 2.177 0.749 2.925 0.411 4.910

2015 1Q 1.070 2.177 0.654 2.831 0.388 4.289

GASOLINE PUMP PRICE BREAK DOWN (TL/lt)

DATE EX

REFINERYSCT VAT

TOTAL OF

DUTIES

DISTRIBU

TION

MARGIN

TOTAL

2005 21.7% 53.6% 15.3% 68.8% 9.5% 100%

2006 24.9% 49.0% 15.3% 64.2% 10.9% 100%

2007 24.4% 47.9% 15.3% 63.1% 12.5% 100%

2008 26.5% 46.1% 15.3% 61.4% 12.1% 100%

2009 22.9% 50.2% 15.3% 65.5% 11.5% 100%

2010 23.8% 51.4% 15.3% 66.6% 9.5% 100%

2011 28.7% 47.0% 15.3% 62.2% 9.1% 100%

2012 32.1% 43.6% 15.3% 58.9% 9.2% 100%

2013 30.5% 45.5% 15.3% 60.8% 8.7% 100%

2014 32.1% 44.3% 15.3% 59.6% 8.4% 100%

2015 1Q 24.9% 50.7% 15.2% 66.0% 9.0% 100%

GASOLINE PUMP PRICE BREAK DOWN (%)

Breakdown of pump prices

DATE EX

REFINERYSCT VAT

TOTAL OF

DUTIES

DISTRIBU

TION

MARGIN

AVG

PUMP

PRICE

2005 0.602 0.835 0.296 1.131 0.208 1.943

2006 0.747 0.836 0.335 1.171 0.281 2.199

2007 0.743 0.850 0.347 1.197 0.347 2.274

2008 1.069 0.930 0.428 1.357 0.377 2.803

2009 0.726 1.004 0.374 1.379 0.350 2.455

2010 0.911 1.307 0.446 1.753 0.364 2.921

2011 1.381 1.307 0.555 1.862 0.390 3.640

2012 1.523 1.372 0.598 1.970 0.430 3.920

2013 1.554 1.597 0.648 2.245 0.460 4.250

2014 1.649 1.597 0.664 2.261 0.440 4.350

2015 1Q 1.131 1.597 0.566 2.163 0.422 3.715

DIESEL PUMP PRICE BREAK DOWN (TL/lt)

DATE EX

REFINERYSCT VAT

TOTAL OF

DUTIES

DISTRIBU

TION

MARGIN

AVG

PUMP

PRICE

2005 31.0% 43.0% 15.3% 58.2% 10.7% 100%

2006 34.0% 38.0% 15.3% 53.3% 12.8% 100%

2007 32.7% 37.4% 15.3% 52.6% 15.3% 100%

2008 38.1% 33.2% 15.3% 48.4% 13.4% 100%

2009 29.6% 40.9% 15.3% 56.2% 14.2% 100%

2010 30.0% 42.3% 15.3% 57.5% 12.5% 100%

2011 37.9% 35.9% 15.3% 51.2% 10.7% 100%

2012 38.9% 35.0% 15.3% 50.3% 11.0% 100%

2013 36.6% 37.6% 15.3% 52.8% 10.8% 100%

2014 37.9% 36.7% 15.3% 52.0% 10.1% 100%

2015 1Q 30.4% 43.0% 15.2% 58.2% 11.4% 100%

DIESEL PUMP PRICE BREAK DOWN (%)

Effect of market interventions on distribution margins

Diesel Gasoline

June 2009 41kr/lt to 30 kr/lt 44 kr/lt to 26 kr/lt

March 2014 50 kr/lt to 36 kr/lt 43 kr /lt to 36 kr/lt

February2015

43 kr/lt to 34 kr/lt 46 kr/lt to 37 kr/lt

Comparison of Turkish vs EU pump prices

• Turkish pump price, when tax effect is removed, is found to be parallel with the EU- med Countries withoutconsideration of structural differences in markets and logistics, regulatory loads and pricing dynamics

• Given a prompt consideration of imporatnat market & regulatory differences tax free pump prices are morecompetitive compared to similar EU markets

Ave

rage

e

Pri

ce R

ange

Pri

ce R

ange

Pri

ce R

ange

Max

imu

m p

rice

Conclusions1- Oil prices have shown significant fluctuations over the last 10 years, effecting markets, investments and energy prices2- Turkish pump prices reflect Med markets and have been strongly influenced by the currency effect in recent months. However, continuous interventions by the Energy Market Regulatory Authority have significantly masked the reflection to consumers.4- Turkish Oil Pump prices shows great dependency to international, primarily to Med Markets and especially when the taxation effect is removed and market differences are properly considered, is competitive with the Mediterranean Markets.6- The profit margins of distribution segment have remained practically the same over the last six years, due to continuous market interventions of Regulatory Authority.

References:

1. www.platts.com2. www.argus.com3. www.iea.gov; Oil Market Report- Monthly Issues4. www.nasdaq.com; markets /crudeoil-brendt-aspx5. www.eia.gov: April 21, 2015, increasing domestic production of crude oil reduces net petroleum imports. 6. R. Yanar, G. Kerimoglu, Ekonomi Bilimleri Dergisi 2014; Vol.3 (2) P.13097. http://www.worldbank.org/content/dam/Worldbank/document/eca/turkey/tr-focus-note-dec-2014-tr.pdf; Focus Note

on Dec 20148. http://www.sabah.com.tr/ekonomi/2014/12/10/cari-acik-yuzde-4un-altina-inebilir#9. www.epdk.gov.tr; Petroleum Market Sector Report, 2013 ; Petroleum Market Monthly Sector Reports and Petroleum

Market Annual Sector Report 2013 10. www.petder.org.tr, Monthly petroleum bulletin, Annual Industry report 201411. https://ec.europa.eu/energy; Oil Bulletin, weekly publication of European Commission

Further correspondence : erol.metin@semenerji.com