Over the past three weeks, wholesale gasoline prices in Russia have fallen by almost 10%, despite the lifting of the export ban on December 1. During the same period, the wholesale price of diesel fuel (DF) decreased by 7%. However, the situation at gas stations is the opposite. The price increase for all types of gasoline and DF not only continues, but has even accelerated.

According to the Moscow Fuel Association (MTA), in just the past week, the price of DF in the capital rose by 41 kopecks, A-92 gasoline by 31 kopecks, and A-95 gasoline by 39 kopecks. Fresh data from Rosstat for the entire country will only be released on December 11, but according to the latest available figures from the agency, from November 12 to December 2, gasoline prices rose by an average of 1.1% (by 61 kopecks). The statistics for DF are even worse, with prices increasing by 1.5% (by 1 ruble) during the same period.

Even considering the peculiarities of the Russian fuel market, where the wholesale segment does not have a direct connection with retail price formation, such a sharp and divergent price movement between the exchange and gas stations seems unusual. However, there are explanations.

According to Dmitry Gusev, Deputy Chairman of the Supervisory Board of the "Reliable Partner" Association and a member of the expert council for the "Gas Stations of Russia" competition, fuel prices on the exchange did not begin to rise after the lifting of the export ban because the restrictions were lifted when the market was saturated with products.

As noted by Yuri Stankevich, Deputy Chairman of the State Duma Energy Committee, the "cooling of prices" in the wholesale segment will likely continue until spring, unless an emergency occurs in oil refining, such as an accident. The situation repeats every year and is driven by seasonal demand reduction. By the end of February, exchange prices will likely begin to rise again.

However, exchange rates and wholesale prices only concern industry insiders, while the population is more interested in what is happening in the retail market. Fuel prices at gas stations this year are behaving differently than usual. Traditionally, at the end of the year, DF prices would rise due to the switch to winter diesel varieties, while gasoline would decrease in price or, at worst, remain at the same level. This year, however, there has been no price drop despite weakening demand.

According to Gusev, the issue lies not in government measures or the lack thereof, nor in seasonal demand changes, but in the gap between the wholesale and retail markets. The exchange is regulated by the market, while retail price increases are limited by inflation. As long as this situation persists, gas station prices will not directly depend on the exchange.

Stankevich shares a similar view. The combination of directive and market mechanisms for price and supply regulation on the domestic market has led to the retail segment being in the most vulnerable position. Retail margins do not exceed 5-7% and do not ensure profitability for gas stations not part of vertically integrated companies (about half of gas stations in Russia). Therefore, retail prices are not decreasing along with wholesale prices. Inflation, rising costs in production, transportation, and fuel sales contribute to the price increase, the expert explains.

Additionally, the rise in gasoline prices is attributed to the fact that the export ban was lifted for only two months, according to Sergey Tereshkin, CEO of the OPEN OIL MARKET platform. Oil companies understand that after January 31, 2025, the foreign market will again be closed, so they have no incentive to behave well. Therefore, a rally in the domestic market is expected until the end of January, especially since this period will coincide with double-digit excise tax increases. The excise on gasoline of grade 5 in 2025 will rise by 14% (from 15,048 to 17,088 rubles per ton).

The expert also emphasizes that the Saint Petersburg International Commodity and Raw Materials Exchange (SPIMEX) accounts for no more than 15% of wholesale fuel sales. By controlling price growth here, oil companies ensure the payment of subsidies from the budget through the price damping mechanism (for wholesale fuel supplies to the domestic market at low prices), but incur no significant costs because 85% of the fuel is sold outside the exchange. Overall, the strategy of oil companies is rational: controlling exchange prices while raising retail prices is two sides of the same coin, as both increase "margins," the expert argues.

The question remains: how will prices behave after the New Year? In January, not only fuel excises will rise, but the tax burden on all oil production companies will increase (due to a new formula for calculating oil prices for taxation purposes), and the cost of transporting oil through pipelines will also go up.

According to Stankevich, these factors will be reflected in the price for the end consumer, but the increase will be gradual, not sudden. Regulators, primarily the Federal Antimonopoly Service (FAS), will closely monitor prices, but economic laws are inevitable.

Alexander Kotov, head of consulting at NEFT Research, believes that the increased tax burden in oil extraction and exports will primarily affect the profitability of oil refining. However, wholesale fuel prices are regulated through the damping mechanism. Retail prices will rise ahead of inflation due to the excise tax increases. The Ministry of Energy is aware of this, but it could not influence the decision to accelerate excise tax growth, the expert notes.

Gusev does not expect price increases in January but believes they are likely in February-March, when demand will begin to revive. An increase in the tax burden always affects prices. The only way to compensate for losses is to raise prices. According to him, 90% of the price growth at gas stations is due to the rising fiscal load on the industry. He believes it is time to reconsider the formula for retail price growth, not just to match inflation, but also to account for the rise in taxes.

Translated using ChatGPT

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