Recently, the Croatian Government has announced that it will effectively stop regulating the prices of oil, gas, and petroleum products in Croatia. In today’s overview, we bring you an overview of what this means, and especially, what it means for one of the largest distributors in Croatia, Petrol.
After about 3 years, the Croatian Government has stopped issuing and extending its bi-weekly regulations that capped maximum retail prices on fuels like Eurosuper 95, Eurodiesel, Blue Diesel, and LPG. The measure was initially introduced to maintain market stability after the start of the war in Ukraine.
The Government has ended the regulation now as, after analyzing market trends, and global and regional fuel prices, they find that the situation is stable, with predictable pricing and secure supply chains. Even so, the Government still pledged to monitor wholesale and retail levels, and may intervene again if unaffordable or unjustified spikes occur again.
This will impact the market in several ways. Firstly, retail prices are now market-driven, with the filling stations being able to set prices independently, adjusting rapidly to global price movements and local market dynamics. This might lead to increased price volatility, especially at motorways and areas with less competition. Secondly, under the cap, retailers earned only a small regulated margin. This deregulation enables them to pass through costs and potentially expand profit margins.
Prices between urban vs. motorway vs. border stations will realign, with competition, tax differences, and convenience playing a big role. Fuel tourism from neighboring countries may decline if Croatian prices rise to parity. On the consumer side, drivers might see higher prices than during the cap, but the Government oversight may soften the potential hikes. However, over time, transport costs may be trending upward.
Taking a look at a real-world example, Petrol, which operates 203 gas stations in Croatia (23% of the market share as of end of 2024, 2nd largest distributor after INA), is set to benefit from this move. While Petrol’s issues in the last couple of years are mainly tied to price caps in Slovenia, prices were capped, although at a higher level, in Croatia also. The current geopolitical environment is, despite all that has happened in the last couple of years, stable.
We shouldn’t see much price fluctuations, unless conflicts in the Middle East escalate, which they might do. If they don’t, the price caps are expected not to come back. In this environment, Petrol could record some margin recovery, as it will be able to align retail prices with actual costs. Furthermore, due to no regulation, they will be able to adjust prices rather quickly based on the market price. This improved profitability in Croatia would also support more investments by the Group, although its disputes with the Slovenian Government have led to the Group signalling reduced investments.
However, like we mentioned, there is also a downside risk to all of this, as price increases, and especially sharp ones might force the Group to pass all the expenses to customers, which would in the end, lead to another price cap. At present, we do not foresee this happening, and as such, we view the overall situation as a positive development for Petrol Group.