Preparing for the diesel season

The Russian market may face a shortage of winter diesel fuel for the second year in a row, as tax policy discourages the production of surrogates, which previously covered up to half of the demand for this type of fuel. In early October, the prices for winter diesel fuel at St. Petersburg MSTB exceeded 70 thousand rubles. per ton, an increase of 25% compared to the previous year. The Ministry of Energy claims that the market will be balanced and do not expect retail prices to rise. However, according to experts, the problem of shortage of winter diesel fuel will worsen this year.

By the beginning of October, winter diesel fuel has risen in price on the SPIMEX exchange by about 25% compared to the previous year. Trades on October 6 ended at around 70.1 thousand rubles. per ton, and on October 3, prices reached the maximum level in history – 73.3 thousand rubles. Winter fuel prices rise for the second year in a row due to lower surrogate fuel production (see figure). “Kommersant” dated October 20, 2021).

An increase in wholesale prices may lead to increased losses for filling stations, which are trying to keep price growth in line with inflation. If this year the sale of gasoline at gas stations brought a significant profit, then independent gas station operators traded diesel fuel at a loss for almost the entire year.

As follows from the letter from the Ministry of Energy (Kommersant has a copy) to the State Duma and the government apparatus dated September 13, in order to contain fuel prices, the option of maintaining in 2023 “conditional average wholesale prices of the domestic market at the level of 2022” in the damper formula . As part of the damper, oil companies receive compensation from the budget for containing prices on the domestic market in the face of rising world prices for petroleum products. Compensation to oil workers is calculated as part of the difference between the export price and the notional (fixed) price of the domestic market. At the same time, in 2023, the conditional price for diesel fuel will be indexed by 3%, to 53.85 thousand rubles. per ton. It follows from the document that the Ministry of Energy “if necessary” will work out measures against “uncontrolled export of fuel”, for which the budget has already paid a damper (Kommersant reported about this scheme on August 16). In addition, as Kommersant reported, the problem of a shortage of winter diesel fuel can be partially solved by supplies from Belarus (see. “Kommersant” from September 9).

Over the years, when prices increased, regulators also discussed a ban on fuel exports, but Kommersant’s interlocutors doubt that the authorities would go for it now.

As Kommersant was told in the Ministry of Energy, “the market will remain balanced, satisfying all the emerging demand in the domestic market, including for winter diesel fuel.” According to the Ministry of Energy, the demand for winter diesel fuel will remain at the 2021 level of 20 million tons, while about 90% of production, as before, will continue to be supplied to the domestic market.

The ministry believes that the change in the price trend in the wholesale market is caused by “precisely seasonal factors” – a cold snap that began a little earlier than in previous years in most of the country.

The FAS reminded Kommersant of the proposals sent in August to stabilize fuel prices, including the preservation of conditional prices in the damper formula. The Finance Ministry declined to comment.

The increase in prices for winter grades of diesel fuel is due to a shortage of the product, which this year may grow by 13%, to 9.8 million tons, Maria Arie from Petromarket believes. Previously, it was covered by surrogates (they are produced by mixing jet fuel and middle distillates at oil depots), but the supply of kerosene for mixing from May to August decreased by 4.5 times in annual terms, to 123 thousand tons, she notes: surrogates are not paid damper, which makes their release unprofitable. To meet demand, surrogates are still needed, Ms. Arye argues, but in order for their sale to become profitable, prices for winter diesel fuel must rise significantly. The only fundamental solution to the problem, in her opinion, is to stimulate the production of winter diesel fuel through new dewaxing units.

Dmitry Kozlov