Fuel prices rose above inflation in January: what will happen by December

To stabilize the situation on the fuel market, officials will again have to pay extra to oil workers

The retail price of fuel, despite various legislative options for their regulation, continues to depend on direct agreements between officials and manufacturers. A serious accident at a large domestic refinery led to a drop in supplies of AI-95 to the domestic market, as a result of which the market price of gasoline jumped by almost 2%. The authorities instructed oil workers to prevent prices from rising at gas stations. The mining holdings will, of course, fulfill this task, but then they will most likely require new subsidies from the budget.

Representatives of industry departments decided to resume negotiations on the price situation on the Russian fuel market with mining companies, in whose hands the lion’s share of domestic oil refining is concentrated, after several unpleasant incidents at the Nizhny Novgorod refinery that occurred over the past three to four weeks. The breakdowns and fires that plant workers had to deal with in December-January disabled one of the relatively new and modern catalytic cracking units, designed for the production of high-octane motor fuel. Technological troubles reduced the supply of sought-after AI-95 to the national market by 200 thousand tons per month, which led to an increase in quotations of this variety in the wholesale segment by 1.8% (in turn, AI-92 rose in price by 1.6%).

Apparently, officials did not propose specific measures to stabilize domestic consumers of AI-95 gasoline, but only listened to manufacturers’ plans to increase the production of gasoline and diesel this year and agreed on the timing and schedule for repairing refining facilities. Meanwhile, as sources say, officials took the oil workers’ word that they would not increase the cost of oil at retail AZM.

Raw materials holdings have assumed similar obligations before. True, such agreements were always supported by certain government guarantees. Mainly, the so-called fuel damper, due to which exporters artificially limited the supply of hydrocarbons abroad, where sales could bring the greatest income. The discussion of the damper did not die down for a minute. At the end of 2023, such payments amounted to almost 1.6 trillion rubles. This is less than in 2022, when tranches exceeded 2.17 trillion rubles, but much more than in 2021, when transfers were less than 675 billion rubles.

“Last September, the damping mechanism was adjusted: a reduction factor of 0.5 was introduced into the formula,” explains Artem Deev, head of the analytical department at AMarkets. — This principle should have lasted until the end of 2026. Then officials met the oil workers halfway and restored the damper to its previous volume. This year, producers will defend the current size of the coefficient, but the Cabinet of Ministers will want to reduce payments: this is necessary to reduce treasury expenses and keep inflation within target levels.”

In order to prevent gasoline prices from rising at gas stations on the eve of the presidential elections, the government will have to act carefully and promptly respond to all changes in exchange fuel prices. “The friction around the size of the damper consists of its constant change,” notes Dmitry Alexandrov, head of the analytical research department at IVA Partners. — To stabilize the cost of finished fuel, it is necessary to adhere to the initially adopted formula, which allows us to avoid price distortions and maintain the profitability of the refinery, providing raw material volumes for both export and sales on the domestic market. Attempts to cut the damper lead to problems, because other elements of the big tax maneuver have already been implemented.”

Experts are confident that negotiations on stabilizing the retail price of gasoline and diesel will not subside, but will continue throughout the year. “Control over fuel pricing in individual regions belongs to local oil companies,” warns Alfa-Forex department head Alexander Shneiderman. As a result, a possible increase in market prices will be a direct consequence of changes in exchange prices, on the basis of which small companies – market participants will have to survive in conditions of minimal profitability, which will require them to increase the cost of petroleum products, depending on the agreements of large businesses with government departments.

According to Freedom Finance Global analyst Vladimir Chernov, the Russian authorities will try to keep the growth rate of domestic fuel prices within the framework of the average annual inflation in the country, which should slow down to 4.5% in 2024. To implement such a plan, damper payments will have to be returned to oil workers in full. In practice, the increase in price tags at gas stations risks up to 7%. However, the government has at its disposal another rather radical tool to reduce the appetites of producers – a temporary but complete restriction of exports. Then oil companies will be forced to either reduce production or reduce prices to increase sales of finished fuel, since domestic fuel prices directly affect the cost of goods in stores. “However, it is unlikely that such a scenario will be realized,” notes Chernov, “since the oil industry is currently in a more favorable negotiating position on the issue of increasing damper payments.”