As oil prices decline, Israel’s high gas prices remain – what gives? - analysis

The all-powerful force of market speculation is giving Israel a run for its money, despite the nation’s plentiful oil supply.

A man fills his tank at a gas station (photo credit: Marc Israel Sellem)
A man fills his tank at a gas station
(photo credit: Marc Israel Sellem)

The past week has seen a decrease in the price of oil around the world, which recently shot up in response to Russia’s invasion of Ukraine. Despite this, the cost of gasoline around the world remains high; Israel saw a NIS 0.64 per liter increase over the course of February, and there has been no word regarding a reduction any time soon.

One may wonder how Israel isn’t at least partially safeguarded from the fluctuating prices, even though it produces more natural gas than it can utilize alone, which has led to substantial trade agreements with Jordan and Egypt. The answer is that although Israel has more than enough to go around, it doesn’t get to set the price for its own commodity.

“The international market is so big, Israel is a small sardine in comparison,” said Dr. Alexander Coman from Tel Aviv University’s Faculty of Management. Start-up Nation’s awkward position boils down to its involvement in the global trade market and its fluctuations at the hands of speculation, he said.

While the global cost of oil has decreased, there is still fear that a prolonged war in Ukraine could lead to harsher sanctions, which in turn might inspire Russia to stop its supply of oil to Europe altogether; as such, high gas prices would be justified. Conversely, if Russia takes over Ukraine, the price may continue to decrease as tensions normalize.

Additionally, the onset of warmer weather may be a factor in oil’s decreased cost, Coman said.

 A worker checks pipes at a gas compressor station on the Yamal-Europe pipeline near Nesvizh, some 130 km (81 miles) southwest of Minsk, December 29, 2006. (credit: REUTERS/VASILY FEDOSENKO) A worker checks pipes at a gas compressor station on the Yamal-Europe pipeline near Nesvizh, some 130 km (81 miles) southwest of Minsk, December 29, 2006. (credit: REUTERS/VASILY FEDOSENKO)

“The idea was that it was supposed to be a very cold winter, and cold winter would mean that there would be great demand for energy, particularly in Europe,” he said. “We’re now in March, and we can basically smell Spring.” With the approach of warmer weather, the market has adjusted to the assumption that “the shortage is not going to be that dramatic in the near term.”

While Israel can’t do much to change the price of oil or gas, it could still be putting its significant oil sale profits to good use, but a bureaucratic hang-up is keeping that from happening, Coman said. The Sovereign Wealth Fund, an account that Israel put in place to collect revenues from the surplus-profits tax on gas fields since 2011, was meant to accrue money during the latest boom in oil prices, he said.

However, due to oil companies’ disagreements about “how much money and when this money should be deposited,” Israel hasn’t seen any benefit, Coman said, adding: “The bottom line is that we, as Israeli citizens, do not benefit from Israeli gas. It’s terrible.”

In January, amid a wave of price hikes for food, electricity and oil, Finance Minister Avigdor Liberman assured the public that things were under control.

“We cannot ignore the rise in oil prices, currently around $87 to $88 per barrel,” he said. “I think it’s a several-decade record. Gas is also up 87% and maritime cargo shipping by 640% since the start of the pandemic. There are increases all around the world, and here it’s the most moderate and the economy is functioning.”

There has since been no official word from the Finance Ministry regarding the increased gas prices.