Cheap oil serves wallet well

Andres Reimer
, majandusajakirjanik
Please note that the article is more than five years old and belongs to our archive. We do not update the content of the archives, so it may be necessary to consult newer sources.
Photo: Toomas Huik

As assured by Estonian Institute of Economic Research (EKI), most of Estonian enterprises are winning by the cheapening oil as ones selling products with price unlinked to oil while purchasing goods that are.

«While the European Central Bank is worrying about overly low inflation, I would not be carried along by these global worries while talking about Estonia,» says EKI director Marje Josing. «In Estonia, far too long we had high inflation wherefore we sank even lower than Lithuania in purchasing power. For us, the stalling price growth has a favourable and refreshing effect.»

The large chemical plants in Ida-Viru County do sell goods linked to oil price, but these do not determine the way it goes with Estonian economy as a whole.

Ms Josing deemed it likely that, in 2015, the oil prices would not be rising to a level comparable to the heights seen at the beginning of this year when over $104 was paid per barrel. Probably, the price will be wobbling around where it currently stands, at close to $60 a barrel.

«Every man’s monetary gain is obvious – we had to pay €13 for ten litres of gasoline, now it’s under €10,» she explained. «Even the farmers, who have been under pressure due to the Russian market cut off, may feel relieved as they begin buying the fuel needed for spring-time work.»

While foodstuff prices may decline, those travelling by bus would better not expect the tickets to cheapen. Whatever the bus companies have thus far gained out of the cheapened fuel will be small money compared to the turnover, and goes to raise the wages of the drivers. 

«All entrepreneurs will understand that paying decent wages is the only prerequisite for bus drivers to stay in Estonia to work,» said Mootor Grupp owner Hugo Osula. «The fuel prices dropping by a couple of dozen percent allows us to keep wages competitive is this business with low profit margin.»

The nearly 300 buses strong Mootor Grupp, buying close to 550,000 litres of fuel a month, wins almost €40,000 euros a month due to the cheapening oil.

«Had the fuel price not dropped, we would have had to face the year to come with much more worry, as this year we needed to start to compete with the train traffic heavily subsidised by state,» said Mr Osula. «Looking at Estonian bus companies’ last year economic results, these were near zero or on the brink of loss.»

According to Road Administration, it is unlikely that the cheapening of oil and fuels would lead to cuts to the support paid to bus companies for subsidised lines – this having been a year of remarkable pressure to raise bus driver wages.

Oleg Gross, owner of Estonia’s only retail chain belonging to sole holder, has a monthly win of nearly €6,000 on fuel as he is using his company trucks in domestic transport.

«While my company OG Elektra used to keep four months fuel reserves, I have given this up because the price keeps falling,» said the entrepreneur. «Oil price drop does indeed reach the buyers in my stores as many foodstuffs are cheapening. Though the expected cheapening of milk products and meat, for instance, is not directly linked to oil price but to the import restrictions set by Russia.»

OG Elektra, possessing close to 20 heavy goods vehicle and 40 cars, monthly buys nearly 40 tonnes of diesel fuel, and 15 tonnes of gasoline.  

Even so, Mr Gross observes that despite the overproduction, dairy industries have not begun to lower product prices. «Consumers get the impression that the retailers are now making mega profits on milk products, but I assure you that the suppliers have retained their current prices and the retailers are longing to see the,» he said.