Wholesale and speech – Newspaper Kommersant No. 12 (7457) of 01/24/2023

Wholesale fuel prices in Russia continue to plummet amid the upcoming EU embargo on imports of Russian oil products. So, on January 23, the stock price of diesel fuel fell by 4%, the most popular brands of gasoline AI-92 and AI-95 fell in price to seven-year lows. The cost of fuel at gas stations remains at the same levels, and experts do not see any prerequisites for a reduction in prices, despite the high profitability of the retail business. They explain that the reduction in processing may create preconditions for an increase in wholesale prices, which regulators will not allow to be passed on to gas station prices.

The cost of gasoline and diesel fuel on the SPIMEX exchange fell to multi-year lows. So, AI-92 and AI-95 fell on January 23 by 0.58% and 0.55%, to 33 thousand rubles. and 37.8 thousand rubles. per ton, respectively. This is the lowest since 2016. Summer diesel fuel fell in price by 4%, to 38.9 thousand rubles. per ton, this is the lowest value since 2017. The cost of liquefied hydrocarbon gases (LHG) on the exchange fell by 11%, to a historic low of 2.9 thousand rubles. per ton.

Fuel prices in Russia are falling in anticipation of the introduction on February 5 of the EU embargo on imports of Russian oil products. At the same moment, the marginal price for oil products from the Russian Federation approved by the G7 countries should start working, although its value has not yet been determined (see Kommersant of January 17). The Russian authorities believe that the current decline in fuel prices is caused by a seasonal decrease in demand, however, according to Kommersant’s interlocutors, the current dynamics is due to a reduction in supplies to Europe. Thus, diesel fuel is the main type of fuel that Russian oil companies traditionally exported in this direction; LPG and naphtha, which is a raw material for petrochemicals, were also supplied.

Last year, oil companies, faced with the problems of marketing offshore oil shipments due to Western sanctions, sought to load their refineries, and also received significant damper subsidies. As a result, a fuel surplus within the Russian Federation led to a decrease in the cost of most types of petroleum products in 2022, except for diesel fuel, which was traditionally exported to the EU. After the introduction of an embargo on petroleum products in February, prices for Russian fuel may continue to decline.

Thanks to lower wholesale prices for petroleum products, filling station operators are able to increase the profitability of their business. So far, there has been no significant reduction in the cost of fuel at filling stations: for example, according to the Moscow Fuel Association, the average price of fuel did not change over the past week.

The net sales margin of AI-92 and diesel fuel was estimated by Petromarket at the end of 2022 at the level of 11 rubles. and 3 rubles. per liter, respectively, and now even higher given the fall in wholesale prices. According to Deputy Prime Minister of the Russian Federation Alexander Novak, by the end of 2022, the prices for gasoline and diesel fuel at gas stations increased by about 1% and 10%, respectively.

Kommersant’s interlocutors do not expect a significant reduction in prices at gas stations, only a “small correction” is possible. At the same time, Kommersant’s sources believe that oil companies are more likely to reduce fuel production than lose the profitability of the refueling business.

Experts do not yet see the prerequisites that gas station operators will reduce fuel prices. Maria Arie from Petromarket recalls that for almost the entire 2021, the trade in fuel for gas stations was unprofitable and now operators are compensating for these losses. They also fear a repeat of the situation in 2021, because in the event of a sharp increase in wholesale prices, the regulator will most likely again not allow it to be fully translated into retail value, which will negatively affect retail margins, she believes. The EU embargo on oil products will have an impact on the demand for Russian fuel in the short term – refining volumes in February may be reduced by 0.2-0.3 million barrels per day, Sergei Kondratiev from the Institute of Energy and Finance believes. He also assumes that this decline will be partly damped by the activation of shipments to the EU on the eve of the embargo and the seasonal increase in domestic demand in March.

Dmitry Kozlov