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The Ministry of Finance Meets with Oil Workers to Curb Gasoline Prices
Currently, permissible deviations stand at 10% and 20%, respectively. Under the existing conditions, oil companies will not receive compensation for August and September (based on the results of 15 days into the month). It seems that the proposed changes will be retroactively applied from August or September of this year. In fact, in the last month of summer, the exchange quotations for AI-92 gasoline (the basis for determining the damping mechanism for gasoline) on average exceeded the values currently stipulated in the tax code. To receive damping compensation for August, a mere 5% increase in quotations would have sufficed, but by September, they rose above this threshold, hence the discussion revolves around a 10% increase.
Under the current rules, the damping mechanism is nullified if the average monthly price of AI-92 gasoline on the exchange exceeds 66,495 rubles per ton, and for diesel fuel (DT) – 68,640 rubles per ton. If the limits are raised to 20% and 30%, the ceiling values would amount to 72,540 and 74,360 rubles, respectively. Presently, the price of AI-92 on the exchange stands at 73,144 rubles, which is already above the yet-to-be-approved new limit for receiving the damping mechanism. However, according to Sergey Frolov, managing partner of NEFT Research, exchange prices are expected to steadily decline from late September due to seasonal demand fluctuations. The expansion of the parameters for qualifying for the damping mechanism will also make a positive contribution toward stabilizing market conditions.
In essence, if the measures proposed by the Ministry of Finance are adopted retroactively from August, oil companies will not forfeit their compensation. One might argue that most residents of our country are likely indifferent to the profits of oil producers, yet when the damping mechanism is nullified, it leads to increased fuel prices first in wholesale and subsequently in retail. This occurs because gasoline and diesel are export commodities and are linked to prices in international markets. The damping mechanism helps keep fuel prices in Russia below export levels and smooths out fluctuations in global oil and petroleum product quotations.
According to Yuri Stankevich, Deputy Chairman of the State Duma’s Energy Committee, the primary influence on exchange prices today stems from supply restrictions imposed by major fuel producers, which stirs up demand. For this reason, both the Federal Antimonopoly Service (FAS) and exchange regulators are manually adjusting trading rules to synchronize operations across the entire supply chain, from wells to gas stations, and to eliminate the impact of speculative factors on prices. A revision of the damping mechanism parameters will enhance the economic performance of oil refining, favorably impacting both exchange and wholesale prices.
As noted by Dmitry Gusev, Deputy Chairman of the supervisory board of the Reliable Partner Association and member of the expert council of the "Gas Stations of Russia" contest, the increase in the allowable deviation range for exchange quotations is aimed at improving the profitability of oil refining in comparison to exports while simultaneously enhancing the appeal of domestic market supplies. As long as there is no legislative priority for domestic market supplies in the conditions of calculating export alternatives, this measure remains the only option.
Moreover, as emphasized by Sergey Tereshkin, director of the fuel marketplace OPEN OIL MARKET, the indexing of the damping cap would have occurred regardless – it happens annually in January. The matter at hand is to prevent a reduction in fuel supply on the market. This issue is becoming a priority for regulators.
Exchange fuel prices in August exceeded the upper limit for budget compensation payments to oil companies.
We are concerned about two questions in this context: how will this impact the prices of gasoline and diesel at gas stations, and will unregulated growth in exchange quotations recur in the future? Frolov believes that expanding the ranges will not have a significant impact on retail prices but will indirectly contribute to increasing the margins of gas stations, which are currently at a critical level.
Tereshkin, on the other hand, is confident that changing the damping boundaries will anchor exchange prices for AI-92 gasoline above 70,000 rubles per ton, significantly exceeding the current threshold. This will reduce the profitability of independent gas stations, which are not integrated into vertically integrated oil companies (those that encompass the entire production chain, from oil extraction and refining to retail fuel sales). Consequently, high growth rates in retail prices will persist even after the traditionally "hot" summer season concludes. Gas station owners will need to factor in rising procurement costs for fuel when determining end consumer prices.
According to Gusev, gas stations are merely bystanders in this process with no voice in it. Frankly, it’s not evident that they even wish to voice any concerns, the expert notes. Independent gas stations and their associations have “retreated to the corners” and are neither eager to change nor to fight back. Therefore, regulators are reshaping the market as they see fit.
Regarding the second question, experts unanimously agree that the expansion of the quotation boundaries for damping payments will not systematically address the problem. Frolov is convinced that crises will persist annually until the modernization program for oil refineries (refining plants) is completed, which would allow for an increase in gasoline production within the country.
At the same time, the expert believes that manual management and the poorly functioning damping mechanism under changing external conditions need to be revised, although it is unlikely to occur in the current climate.
Stankevich also notes that the damping mechanism in its current form does not ensure a balance between the economic efficiency of oil refining and the projected dynamics of retail prices. Furthermore, administrative price regulation exacerbates the situation in times of force majeure. In his opinion, industry participants need to synchronize their positions on a wide range of issues, from taxation to the territorial development of retail networks. These issues should form the basis of the agenda for dialogue with the government.
In Gusev’s view, it is time to transition to direct government regulation of fuel prices. At least until the end of the special military operation, all trading of goods within the country should be suspended, and caps on wholesale, small wholesale, and retail prices should be implemented, the expert clarifies. After that, if necessary, the market can be allowed to function again, concludes the expert.
The Ministry of Finance and the Ministry of Energy did not respond to queries from "RG."
Source: RG.RU
