KAPSARC – Gasoline and Diesel Prices in the OECD, China, and India

This introduction discusses the methodology and findings of a study on gasoline and diesel prices in the OECD, China, and India. The prices at the pump are influenced by four factors: crude oil prices, government taxation, refining margins, and commercial (retail) margins. The prices are converted to US dollars for regional comparison using monthly exchange rates. The study highlights the distortion caused by the sensitivity of prices to the USD exchange rate. For example, Japanese gas prices decreased by 9.4% when compared in US dollars but increased by 10.2% when compared in Japanese yen. However, the percentage share of each factor in the final price remains unaffected, making it a reliable index for comparison between regions. Taxes play a significant role in the final prices of gasoline and diesel. In the OECD, taxes make up more than 50% of the final price, while in China and India, the share ranges from 35% to 65%. The variation in prices is linked to changes in oil prices and refining margins, rather than taxes. Governments react relatively quickly to oil price changes. During the COVID-19 pandemic, some governments increased taxes or reduced fiscal support for oil fuels when prices dropped, while high oil prices led to tax cuts or subsidies. Different regions have different tax regimes based on their climate concerns or energy security needs. European countries opt for high taxes to address climate concerns, while North America has lower tax regimes for oil products due to energy security considerations. The record-high prices experienced in 2022 were not solely due to high crude oil prices but also to increased refining margins caused by refinery closures and global geopolitical events.