The government plans to change the rules for compensating oil companies from the budget for fuel supplies to the domestic market (the damping mechanism), by dividing them according to fuel types – gasoline and diesel fuel (DF). Exceeding the maximum established price for one fuel type will not affect payments for suppliers of the other type. The relevant bill was developed by the Ministry of Finance.

The damping mechanism compensates part of the difference between the indicative (conditional) price of fuel, set by the state, and its export value. It is paid for wholesale fuel supplies with a deviation from the indicative price (on average per month) of no more than 10% for gasoline and no more than 20% for DF. Domestic prices are determined based on fuel trading on the St. Petersburg International Mercantile Exchange (SPIMEX). Under current rules, if any of these values are exceeded, the damping is nullified.

Gasoline and DF are produced in Russia in different volumes, often by different refineries. Gasoline is primarily produced for the domestic market, with only a small portion exported, while half of Russia's DF volumes are sent abroad. They also have different peak demand seasons. For gasoline, the consumption period is the holiday season, from late spring to autumn. For DF, it's the period of active agricultural work, from late summer to November. As a result, the nullification of the damping mechanism, for example, due to rising gasoline prices, affected companies producing DF, leading to its price increase (since compensation is not paid) and vice versa. The government now aims to address this imbalance.

Dividing the payments by fuel types will help regulate the domestic market better. As noted in a conversation with "RG" by Dmitry Gusev, deputy chairman of the supervisory board of the "Reliable Partner" association, the government's intention to separate damping payments by fuel type is absolutely correct and will contribute to better regulation of the domestic market. If gasoline prices rise sharply, it would be inappropriate to withhold damping for DF, and vice versa. This could worsen the market situation.

However, the proposed adjustments to the damping mechanism may not solve all the problems in the fuel market. The damping is currently determined based on quotations for AI-92 gasoline and summer grades of DF. At the moment, AI-95 gasoline is showing the most significant growth on the market. It is expected that DF prices will traditionally rise in the fall and then jump further when switching from summer to winter grades, as winter fuel is more expensive. The damping mechanism does not account for AI-95 gasoline or winter-grade diesel.

According to Sergey Tereshkin, CEO of the OPEN OIL MARKET fuel and raw material marketplace, the fact that the exchange price for AI-95 is not included in the damping calculations gives oil companies the opportunity to increase refining margins without the threat of losing subsidies. This explains the more than 20% difference between the exchange prices of AI-92 and AI-95 that has arisen recently.

He also clarifies that the period from August to September is traditionally when DF prices increase, and this year will be no exception. The main increase will be observed not on the exchange but in the small wholesale segment, where prices reached 100,000 rubles per ton during last year's harvest season. Exchange prices briefly exceeded 75,000 rubles per ton.

Energy expert Kirill Rodionov notes that oil companies are looking for loopholes to increase production and sales margins without the threat of losing subsidies or export bans. This concerns exchange prices for AI-95 gasoline and winter diesel fuel. These segments will continue to face risks of accelerated fuel price increases.

From Gusev's perspective, the damping mechanism is fulfilling its role of normalizing the overall situation in the fuel market. However, some parameters of the damping mechanism and the rules for the fuel market need to be adjusted occasionally in response to changing market conditions. He suggests that damping payments could be separated by gasoline brands and DF grades.

Currently, exchange price increases are within the limits set by the damping parameters. According to these parameters, oil companies lose the right to subsidies if the average monthly exchange price for AI-92 exceeds 64,515 rubles per ton (currently 55,153 rubles per ton), and the price for summer DF exceeds 66,000 rubles per ton (currently 61,627 rubles per ton). Meanwhile, AI-95 gasoline is currently trading on SPIMEX at 73,739 rubles per ton. According to Rosstat data, the average price of AI-95 gasoline in Russia on August 5 was 58.04 rubles per liter. There are about 1,333 liters of gasoline in a ton, so the wholesale price per liter of this grade is 55.32 rubles. However, the gasoline still needs to be delivered to gas stations, which also pay taxes, employee salaries, and spend money on maintaining operations.

The damping mechanism has been in place in the Russian fuel market since 2019. In its entire history, it was only nullified once, in September last year, during the height of the fuel crisis. At that time, the rules for payments to oil companies were changed, with a coefficient of 0.5 (instead of 1) reducing the compensation by half. Fuel prices rose and exceeded the threshold values. In October, the previous rules with a coefficient of 1 were reinstated, after which exchange quotations went down.


Translated using ChatGPT


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