Russia’s petrol prices stabilised in 2019

However, 2020 may bring new price spikes

The average petrol price growth in 2019 was lower than annual inflation due to weak domestic demand and supply surplus. Nonetheless, low competition, retail growth and higher excise taxes are likely to spur the prices in 2020 unless the government reins the industry back.

Russia may see petrol price surge in 2020, says adding that the fuel market depends not only on the balance of supply, exports and domestic demand but also on how tolerant the government is to price fluctuations. Last year, petrol was rising in price much more slowly than in 2018, although the Russian government and oil companies suspended an agreement on fixing fuel prices in the middle of the year. According to Rosstat data, the 12-month price increase for petrol and diesel amounted to 1,4-2,6% in November, while a year earlier it varied from 9,7% to 17,2% depending on the type of fuel.

The key reason was weak domestic demand, as the domestic market still prevails over exports in the supply of Russian producers (88,1% versus 11,9% in January-October). In the first ten months of 2019, petrol supplies to the Russian market fell by 1,4% in annual terms following a drop in new car sales. Besides, the price growth slowdown was affected by lower European prices, which are taken into account when calculating the damper used to compensate oil companies for the difference between fuel prices in Russia and abroad. In addition, the Russian market faced a surplus due to the fact that in February Tatneft launched new petrol production units at TANECO refinery with an annual capacity of 1,1 million tonnes.

Nonetheless, stabilised prices do not guarantee that in 2020 their average growth will be lower than annual inflation like it was in November (1,7% versus 3,5%). Increased excise taxes and retail growth are expected to stimulate petrol price rise. Prices will be also spurred by low competition in the Russian fuel market. In 2018, the total share of Rosneft (including Bashneft), Lukoil, Gazprom Neft and Surgutneftegas amounted to 79,5% of the country’s petrol production market allowing them to vary fuel prices depending on the solvency of car owners.

The government has several ways to mitigate low competition, such as de-monopolising the industry or increasing the share of mandatory petrol sales at the commodity exchange, which currently amounts to 10%. The latter would partially deprive oil companies of the opportunity to sell oil products directly through their own sales subsidiaries and make it more accessible to independent fuel retailers, which are currently accounting for 60% of gas stations but only 40% of retail fuel sales, according to Russia’s Federal Antimonopoly Service. The Kremlin could also keep prices down by freezing excise taxes. Such steps would be more effective than manipulations with the damper, which has limited impact due to the small exports volume.

By Anna Litvina

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