--- title: "From well to pump: how fuel prices are formed" description: ECB staff blog on the mechanics of oil-to-pump pass-through following the 2026 Middle East shock and the Strait of Hormuz closure. source: Helious canonical: "https://helious.io/news/1694bfd94c703632864035561242f02b/from-well-to-pump-how-fuel-prices-are-formed" --- ECB 31 Jul 2026, 10:00 UTC # From well to pump: how fuel prices are formed ## SPEECH DIGEST NEUTRAL medium confidence · 11.0k characters read ECB staff blog on the mechanics of oil-to-pump pass-through following the 2026 Middle East shock and the Strait of Hormuz closure. It documents energy HICP swinging from -3.1% in February to 10.8% in May and 8.5% in June, with refining margins amplifying the crude move. The forward-looking piece: diesel futures as of 20 July imply the margin contribution peaks in August then falls back to €0.16 by end-2027, near pre-shock levels. Explicitly staff views, not Governing Council views. **What’s new: **Not much for policy. The useful new bit is the staff's own path for refining margins: peak in August, then normalising to end-February levels by end-2027, which frames the energy shock as a hump rather than a persistent level shift. Also a nudge on asymmetry: staff say recent work suggests slower pass-through on the way down, and that this needs further analysis, which is a mild hint that the disinflation leg may lag. Elasticity of roughly 0.3 from oil to retail is already a known ECB parameter. ### KEY FINDINGS - Refining margin contribution to diesel is expected to peak in August before declining to €0.16 by end-2027, close to end-February 2026 levels, based on 20 July futures. Supports treating the energy spike as transitory in the projection horizon, which argues against policy reacting to headline energy inflation. - Fuel drove euro area energy HICP from -3.1% in February to 10.8% in May, easing to 8.5% in June. Quantifies the headline shock the Governing Council is looking through, and confirms the June rollover was already under way. - Pass-through from crude to pre-tax pump prices is fast (one to two months) and complete in levels, but the retail elasticity is only around 0.3 in percentage terms because excise and VAT are largely fixed. Caps the size of headline energy inflation surprises from any given crude move: a mechanical dampener the market can price. - Refining margins hit near-record highs in July, contributing €0.35 per litre to diesel and €0.23 to petrol, after the Hormuz closure cut global refined-product exports by around 4.5 mb/d in Q2. The margin channel means fuel inflation can overshoot what crude alone implies, a two-sided risk on the way back down. - Staff flag that recent literature suggests slower pass-through when oil prices fall (rockets and feathers), and say further analysis is needed. Mildly hawkish for the energy disinflation profile: the relief leg may arrive later than the spike. - Temporary reductions in excise duties and taxes are cited as having helped alleviate the burden on consumers. Fiscal offsets flatten measured HICP now and create a base effect unwind later, complicating the 2027 profile. ### FROM THE DOCUMENT Rather than being absorbed by lower profit margins, an increase of €0.10 per litre in crude oil prices usually translates into an increase of €0.10 per litre in pre-tax pump prices. Looking ahead, based on refined diesel futures on 20 July, the contribution from margins is expected to peak in August before declining to €0.16 by the end of 2027, close to levels observed at the end of February 2026. However, more recent work suggests that the pass-through could be slower on the way down. Overall, the Harmonised Index of Consumer Prices (HICP) for fuel drove the increase in the HICP for energy from -3.1% to 10.8% between February and May 2026 before it declined to 8.5% in June. By Friderike Kuik, Eliza Lis, Christiane Nickel and Mario Porqueddu [1] Retail fuel prices have surged in 2026 following the outbreak of the conflict in the Middle East, driving up euro area energy inflation. In this blog, we examine the factors that drive fuel price dynamics at the pump. Rising oil prices amid the conflict in the Middle East have put the public spotlight back on fuel costs and their potential impact on inflation. This blog post explains how changes in crude oil prices feed through to what consumers pay for petrol or diesel at the pump. To do so, we take three steps. First, we break down prices into three components − crude oil, refining and distribution margins, and taxes − and show how these prices reacted to changes in oil prices within weeks and the pass-through was complete. [ Read the full ECB Blog post at the source →](https://www.ecb.europa.eu//press/blog/date/2026/html/ecb.blog20260731~6224db57f8.en.html) Copy link [Follow this live on the Helious desk →](https://helious.io/)