Amid concerns surrounding gasoline, which exceeded inflation at gas stations as early as July, and has periodically set historical records on exchanges, less attention has been paid to diesel fuel. Traditionally, autumn marks a decrease in gasoline demand and an increase in diesel consumption linked to agricultural work. Furthermore, beginning in October, a gradual transition to winter-grade diesel fuel—which is more expensive than its summer counterpart—will contribute to higher prices.
The good news is that while gasoline production in Russia barely exceeds domestic consumption (prior to export bans, 10-15% of output was allocated for export), diesel fuel is produced at twice the consumption rate. Therefore, even considering unscheduled maintenance shutdowns at refineries, diesel shortages are unlikely to arise.
The increase in retail prices for diesel, which has reached 0.2% for the second consecutive week, aligns with the heightened price expectations typical in autumn due to the transition from summer to interseasonal and winter diesel fuel. Market analysts do not anticipate significant disruptions in the diesel market due to the substantial surplus production capacity, which easily meets domestic demand, according to Kirill Rodionov, author of the Telegram channel "High Voltage."
However, this does not imply that diesel prices will cease to rise. In fact, according to Sergei Frolov, managing partner of NEFT Research, the seasonal price increases for diesel have yet to begin, as even the northern regions of Russia have not transitioned to winter diesel grades. The expert also emphasizes that, given the twofold production capacity surplus, any continued price increases can easily be managed by reducing exports to bolster domestic supply.
In Russia, diesel fuel production is twice the amount consumed domestically.For fuel producers, exporting is currently more profitable. Russian legislation does not prioritize domestic fuel deliveries over exports. Convincing producers to supply diesel domestically rather than for export could be achieved through three main approaches: negotiating with oil companies, increasing mandatory sales quotas on exchanges, or enforcing an export ban. The first approach, however, appears to have lost its effectiveness; discussions with oil producers are occurring with alarming regularity, yet prices continue to rise. The current sales quotas on exchanges are set at 15% for gasoline and 16% for diesel. Reports have suggested that the Federal Antimonopoly Service is considering raising the gasoline quota to 17%, but there has been no discussion regarding diesel. Additionally, a mere increase in quotas by 1-2% is unlikely to significantly impact market quotes. The option of enforcing an export ban remains, yet it poses a significant risk, as it would mean crippling a major revenue source for diesel producers. If an export ban were instituted, the only alternative would be a damping mechanism (compensation from the budget for fuel sold on the domestic market at lower prices).
According to Dmitry Gusev, Deputy Chairman of the Supervisory Board of the "Reliable Partner" Association and member of the expert council for the "Gas Stations of Russia" competition, an export ban on diesel is virtually impossible as long as production significantly exceeds domestic consumption. Such a ban would likely lead to the halting of a substantial portion of refining capacity since there would be nowhere to direct the surplus fuel. Frolov offers a differing perspective; he believes that an export ban could be feasible if relevant authorities realize the situation is spiraling out of control, but it should be regarded as a last resort.
The pressing question remains: what will happen to retail prices at gas stations? Both Frolov and Gusev are confident that retail prices for diesel will align with inflation levels. This assertion is supported by the fact that sellers offered substantial discounts over the summer. Currently, not only in retail but also in the B2B segment, these discounts are decreasing or being eliminated entirely, Gusev notes. This shift indicates diminishing profit margins on diesel fuel. The market situation has worsened, and both producers and sellers realize that if they fail to catch up with existing inflation this year, they will find it nearly impossible to do so in subsequent years, where inflation will again be a consideration from the beginning of the year.
Changes in the damping parameters currently under discussion in the government may also impact price increases. While these adjustments primarily aim to prevent a crisis in the gasoline market, they will inevitably affect diesel prices as well. The Ministry of Finance has agreed to raise the maximum allowable deviations of market fuel prices for obtaining the damping compensation by 10 percentage points—to 20% for gasoline and 30% for diesel—based on indicative prices set by the government for one year (60,450 rubles per ton for gasoline and 57,200 rubles per ton for diesel). At present, permissible deviations stand at 10% and 20%, respectively.
Under current regulations, the damping mechanism is nullified if the average monthly price of A-92 gasoline (the basis for damping calculations for gasoline) on the exchange exceeds 66,495 rubles per ton, while the threshold for diesel is set at 68,640 rubles per ton. Should these thresholds be raised to 20% and 30%, the respective limits would then configure to 72,540 and 74,360 rubles. This change is intended to ensure oil producers continue to receive damping payments for gasoline. It is highly likely that modifications will be applied retroactively, given that the maximum allowable values for damping have already been surpassed for gasoline as of August. Currently, A-92 gasoline is trading at 73,164 rubles per ton on the St. Petersburg exchange.
While these values for diesel have not been exceeded as of yet, Sergei Tereshkin, director of the OPEN OIL MARKET fuel marketplace, remarks that regulators still plan to raise them. Fuel suppliers are keen to increase revenues from diesel sales on exchanges while retaining eligibility for subsidies. This aspect is particularly crucial now, as a number of refinery operators will have to allocate additional funds to restore fuel infrastructure. Therefore, considering the seasonal demand for diesel in autumn and the switch to costlier winter grades, experts believe that both exchange and retail prices for diesel will exhibit more dynamic growth than gasoline prices.
Source: RG.RU
