Leaps on fuel exchange to lead to an increase in gasoline prices at retail?

Wholesale purchases of fuel cost 20% more expensive, independent filling stations warn about the risks of a sharp rise in fuel prices at filling stations

The Independent Fuel Union has sounded an alarm in the fuel market. According to them, a sharp increase in wholesale prices for gasoline and diesel (by up to 20%) will somehow lead to a rapid increase in fuel prices at retail, what is more — within a few months. The organization considered the price freeze agreements with the subsidy mechanism attached to them to be ineffective, especially since they are due to expire this summer. Experts' opinions on this issue are divided: some believe that an increase in retail prices is inevitable, others — that an increase in wholesale prices is a temporary phenomenon and will not lead to negative consequences. Read more — in the material of Realnoe Vremya.

Independent gas stations sounding the alarm

The Independent Fuel Union has warned of the risk of a sharp jump in gasoline prices. According to an analysis of the union, from April 15 to May 15 wholesale prices on the St. Petersburg International Mercantile Exchange (SPIMEX) for the AI-92 gasoline increased by 23%, and for the AI-95 gasoline — by 18,5%, the price of summer diesel fuel increased by 2,5%. According to the same data, the growth of exchange prices is already spreading to small wholesale. For example, in Saratov Oblast over this period the prices for AI-92 increased by 11,2%, for AI-95 — by 10,4%, and for summer diesel fuel — by 2%.

The union also reminds that there is the agreement on freezing prices with the largest oil companies to curb the growth of prices for gasoline and diesel fuel. Let us remind that last time it was extended on 31 March 2019 for three months, its term was to expire on 1 July 2019 (the media reported that after this date the agreement would not be extended). The union considered the damping mechanism (subsidizing the price of gasoline from the budget), which the government considered as a tool to ensure sufficient margins for both oil refining and retail and which was supposed to support oil companies, to be ineffective.

“In the conditions of non-working damper, a growth of wholesale and, ultimately, retail prices for motor fuels is inevitable, unless urgent measures are taken. In other words, it is very likely to implement the scenario of last year, when there was a sharp jump in both wholesale and retail prices,” the organization warns.

The president of the Independent Fuel Union, Pavel Bazhenov, proposed to abandon the agreement in favour of reducing excise taxes on fuel by at least 50%, as well as to reform the oil and gas industry with the liberalization of retail fuel prices.

“We have just a month to take urgent operational measures, otherwise the situation on the fuel market can get out of control, which is fraught with significant socio-economic shocks for the citizens of Russia,” Pavel Bazhenov said in a statement. According to RBK, the stated facts and proposals of the union to resolve the situation was sent in a letter to Deputy Prime Minister of Russia Dmitry Kozak.

Retail prices are not rising yet

However, retail in Tatarstan is not experiencing any consequences of the growth of wholesale prices so far — agreements on freezing are still in force. Lyudmila Alexandrova, the head of the planning and analytical department at Management for Rational Use and Quality of Fuel and Energy Resources in the Republic of Tatarstan, said in a conversation with the correspondent of Realnoe Vremya that retail prices of the main refuelling operators have not changed since the conclusion of agreements between oil companies and the government of the Russian Federation. This follows from the monitoring data of the organization.

“Today, there is no such trend for retail prices increase. We also have not received appeals from the enterprises of oil products supply on this subject,” Aleksandrova added.

Let us note that the analytical service of Realnoe Vremya conducts its own weekly monitoring of prices for the AI-92 gasoline in the networks of filling stations in the cities of the Volga Region. According to the monitoring, the latest jump in prices was recorded in May 2018.

“Damping agreements — as useless as an udder on a bull”

Mikhail Krutikhin, a partner of RusEnergy consulting agency, believes that the retail price of fuel will increase soon one way or another.

“Now our refineries are being on the verge of profitability, and for some periods they are in the red. So, naturally, they will raise their selling prices for oil products. So it will have absolutely no difference — to sell to the stock exchange or directly to independent gas stations — retail prices will increase anyway.”

Krutikhin considered a further extension of the agreements on fuel prices freezing unlikely and ineffective.

“Certainly, they (oil companies — editor’s note) can demonstrate discipline and tell the government that yes, they agree to hold down the prices. But they are already protesting, they understand that they are being robbed. They are now trying to provide them with damping taxes and so on as a consolation. But, first, it is as useless as an udder on a bull, it's not enough. Second, the consumer, buying fuel at the filling station, also pays taxes. And from these taxes, some compensation will go to oil companies. That is, in the end, it is again a robbery of a simple consumer. So I believe that there will be no real agreements.”

At the same time, Krutikhin did not make specific forecasts for price growth — there is too much uncertainty. “It all depends on the behaviour of the government and, most importantly, oil companies.”

The increase in wholesale prices is temporary, the reason for this is Antipinsky Refinery?

Vasily Tanurkov, the deputy director of ACRA corporate rating group, holds a diametrically opposed view.

“I do not think that there will be an increase in prices that would not correspond to the current agreements. Now there is no great gap between export netback and domestic prices. I'm not even sure that the current increase in wholesale prices is a long-term phenomenon. Of course, it may be due to that there are certain problems at the refinery of Noviy Potok GC (this group includes Antipinsky Refinery, which has recently asked for its own bankruptcy — editor’s note). But if we look at what jumps were last year, then there was an increase in oil prices and a weakening of the ruble — very strong external factors. Now there is nothing like this, oil prices and the ruble are quite stable. There is no factor that would make prices catch up to some level.”

Nevertheless, Tanurkov also noted that to date the agreements on freezing prices have lost their meaning.

“In the first half of the year, the effect of the agreements was quite insignificant. Again, there were no sharp factors, so even without the agreement, the prices will be quite stable,” the expert concluded.

It should be noted that the Independent Fuel Union also sees the situation at the Antipinsky Refinery as one of the sources of problems. “Processing was driven into the red, which led to the actual stop of the largest independent Antipinsky Refinery, and 14 more independent refineries are in the pre-bankruptcy state. Now it is the turn of independent filling stations. So we are preparing for a new round of the crisis and the further struggle for survival,” Bazhenov noted.

By Aleksander Artemyev

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