How Russia got to the fuel crisis
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The government’s drastic steps to shut down fuel exports, as well as the authorities’ willingness to reconsider their previous decision to reduce fuel subsidies by mid-October, have cooled the fuel market. Wholesale prices are falling, retail prices are stabilizing, and gas station margins may turn positive in the coming weeks. “Kommersant” looked into how the crisis became possible, as well as how sustainable the measures taken were in the long term.
The fuel crisis that began in the summer unexpectedly became the most acute in recent years, forcing the authorities for the first time in modern history to move from threats to limit the export of petroleum products to an actual ban. By the time the government took these unprecedented measures, fraught with risks for oil refining, wholesale prices for gasoline and diesel fuel were twice as high as at the beginning of the year, and retail prices were growing significantly higher than inflation (see infographic).
The Ministry of Energy cites market conditions as the cause of the crisis (see interview). Kommersant’s interlocutors in the companies see the trigger as the decision of the Ministry of Finance to reduce damper payments to refineries, which are subsidies for the supply of fuel to the domestic market at prices lower than the equally profitable export price (export alternative). The decision was conceptually made in April against the backdrop of problems with filling the budget, but actually came into force in September, when, due to the weakening of the ruble and rising oil prices, budget problems were already resolved, but the oil products market remained unprotected.
In addition, the market expected protracted refinery repairs in 2023 due to the fact that the EU imposed sanctions on the supply of equipment and technology last year. Finally, fuel demand appears to have increased this summer amid increased domestic tourism and transportation to new regions. Thus, Eurotrans (which manages the Trassa gas station) notes an increase in gasoline consumption by 2022: “In general, in the market of the European part of Russia, sales volume increased by several percent.” The combination of these factors has led to the fact that over the past months, the cost of fuel on the stock exchange has been continuously growing and reached a historical peak in September: 70 thousand rubles. per ton AI-92 and 76 thousand rubles. per ton AI-95.
The destabilization of the fuel market in Russia is caused by a complex of factors, according to Kommersant’s interlocutor in the oil industry. The global reasons are the increase in prices for petroleum products while the dollar exchange rate increases. Local reasons include logistical difficulties in transporting petroleum products by rail to a number of Russian regions, seasonal increases in demand, and lengthy repairs at some refineries.
Return of the Prodigal Damper
Since June, the government began discussing measures that could curb the growth of stock exchange prices for fuel, but until very recently it was limited to verbal interventions. Thus, licensing and export quotas, as well as protective export duties, were discussed, but none of this was implemented. Instead, on September 21, the government suddenly – for the first time in modern history – introduced a complete ban on the export of gasoline and diesel fuel, which very quickly led to a decline in stock prices by about 20%. By the beginning of October, it became clear that refineries in the European part of the country were in danger of quickly becoming overstocked with diesel fuel, since Transneft storage facilities were almost full. The industry is facing the threat of a reduction in processing. Then on October 6, the government lifted restrictions on the export of diesel fuel, but only through pipelines. For gasoline, restrictions remain, and it is unclear when they will be lifted.
At the same time, the authorities decided to abandon the halving of the damper and restore it retroactively from October 1. Since in September refineries did not receive any damper at all (including a reduced one) due to the fact that wholesale prices had risen too much, a “savings” of 150 billion rubles was created. According to Kommersant’s interlocutors, restoration of the damper will cost the budget in October-December 300–350 billion rubles. (at a dollar exchange rate of 100 rubles and Urals $76–83 per barrel). Most of this amount (260–320 billion rubles) will be automatically compensated by an increase in the mineral extraction tax on oil due to a change in the coefficient (Kabdt) in the damper formula. As a result, additional budget expenses are not so large – about 10 billion rubles. per month. This is probably why on October 11, Deputy Prime Minister Alexander Novak announced that the mineral extraction tax on oil would not increase further. However, Deputy Head of the Ministry of Finance Alexei Sazanov said that he expects “a comprehensive solution with mechanisms for compensating for lost income,” probably referring to the financing of the damper in 2024.
According to Petromarket, at the end of October the damper for gasoline will be 32.6 thousand rubles. per ton, for diesel fuel – 31.4 thousand rubles. per ton. Adjusting the damper has solved the market problems for now, according to Petromarket: “Even under the conditions of the export ban, fuel supplies to the domestic market have become more profitable than export supplies.” Thus, as of October 6, the national average premium of the domestic market to the export alternative, taking into account damper payments, was 10.3 thousand rubles. per ton for AI-92 and 10.4 thousand rubles. for summer diesel fuel, whereas on September 29, instead of a premium, there was a discount: 23.5 thousand rubles. per ton for AI-92 and 32 thousand rubles. per ton of diesel fuel.
One of Kommersant’s interlocutors potentially sees the need to increase the damper, at least for gasoline, in order to eliminate the imbalance between the export alternative and the price of the domestic market. In addition, in his opinion, it is possible to reconsider the constant increase in excise taxes on gasoline and diesel fuel, which will increase the profitability of market participants while maintaining a constant price at gas stations.
Wholesale is more expensive
As a result of the crisis, independent gas stations found themselves in the most vulnerable position, which, due to rising wholesale prices, were forced to incur losses on fuel sales or raise prices much faster than gas stations of large oil companies. In some cases, this also led to a decrease in fuel supply. “From their oil refineries, large oil companies sold fuel at high prices to independent ones, while they themselves kept low prices at gas stations,” notes the head of the Association of Gas Stations of Dagestan, Yusup Charaburaev. “Independent ones were forced to keep higher prices in order to earn at least something.”
Having taken measures to limit exports, regulators immediately demanded that gas stations reduce prices. According to the minutes of the meeting with Alexander Novak, oil companies were recommended to keep prices at gas stations at the level of September 21. According to Mr. Charaburaev, for independent chains, reducing prices for “expensive goods” would result in additional losses, and “what was purchased today (cheaper.— “Kommersant”) fuel will arrive only in one and a half to two months.” Nevertheless, many independent gas stations have adjusted their price tags. The head of the Altai Fuel Union, Yuri Matveiko, said that after the intervention of the regulator and the return of the damper, fuel prices at gas stations in the region are reduced in the range of 0.5–1 rubles. per liter “By October, prices should decline further if the situation on the stock exchange does not change. However, the prices that exist now are far from the level they were in the summer before the increase, and they still need to fall by 5–7%; the difference in fuel prices at private gas stations and large oil companies is 3–4 rubles,” he said . “Favorite Fuel Company” (Trade Project LLC – Lipetsk branch) reported that on October 5 it reduced the cost of gasoline by 2 rubles, diesel fuel by 3 rubles. An increase in prices at gas stations of regional operators in the Krasnodar Territory has been noted since the beginning of August; now prices are declining, said Nikolai Kovalchuk, territorial manager of the fuel sales sector of the PNB gas station network: “In the near future, we expect to return to the level that was before the surge in prices.”
As representatives of several large gas station operators in Crimea and Sevastopol told Kommersant, fuel prices on the peninsula will likely begin to decline starting next week and will be equal to mainland prices (in the Southern District) within a few months. Eurotrans shareholder Sergei Alekseenkov said that the company has created the necessary fuel reserves, fuel sales at gas stations under the Trassa brand are carried out with the required degree of profitability: “Our sales volumes have not fallen, except for a seasonal drop of 4–5% (September by August), and by last September they even grew.”
The net margin of fuel sales at gas stations is still in the negative zone, Petromarket notes: as of October 6, the national average was minus 4 rubles. per liter AI-92 and minus 2 rubles. per liter of summer diesel fuel. But with the current rapid decline in small wholesale prices, gas station margins may enter the positive zone in the coming weeks.
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