September 28

Moscow Mulls New Steps to End Fuel Crisis

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Moscow is proposing a number of additional measures to resolve the crisis on the domestic oil products market on top of the gasoline and diesel export ban introduced last week.

Russian Deputy Prime Minister Alexander Novak, at a government meeting chaired by President Vladimir Putin on Sep. 27, initiated the amendments to the so-called buffer mechanism that compensates oil companies for the difference between the margins on global markets and prices at home. The size of the subsidy was reduced by half starting from September and caused a lot of grief among the oil companies.

Other proposed steps include increasing the duty for the so-called “gray” exporters that buy products on the domestic markets for sale outside the country from 20,000 rubles ($207) to 50,000 rubles per metric ton, or to forbid exports altogether for firms that don’t produce oil products.

According to Novak those measures would help to balance the internal market for the longer term in addition to the immediate effect that has been achieved by the export ban. Novak said that as a result of the embargo, prices at the commodity exchange fell by some 20% for gasoline and by 16% for diesel. Novak said the increase in price by 1%-2% in the first two days of this week was a usual market correction.

He also said that “unscrupulous” traders had been suspended and proposed control over pricing at the retail stations, as well as to subsidize supplies of fuel oil to the Murmansk and Kamchatka regions.

Uncertainty Stays

Novak said those steps would be approved by the government “in the nearest future.” But nothing was said at the meeting about terminating the export ban. The ban could make things worse in a couple of weeks when Russia could face a diesel glut. Companies will then have to reduce refining runs, potentially creating a gasoline deficit on the market. Sources say Transneft could stop accepting diesel in its system already on Oct. 1.

“Ideally, the ban should be cancelled as soon as systematic measures aimed at the division of the internal market and export supplies are worked out and agreed on,” a representative of the St. Petersburg International Mercantile Exchange told Energy Intelligence.

Such measures are supposed to make internal supplies more attractive than exports. Higher prices on global markets and the ruble devaluation were among the key elements behind the current crisis. Coupled with logistical problems, heavy refinery maintenance and the change in buffer mechanism subsidies, they led to soaring motor-fuel prices and tight supplies that also hit the agricultural sector during the harvest season.

Putin said at the meeting that Novak should work more closely with oil companies that should also be aware of their responsibility. He added that the government understands the companies’ desire to make more money, which is also good for the state budget, but domestic demand should be met first.

Fuel product prices have always been a sensitive issue, particularly before the presidential election to be held in Russia next year.

No Easy Solutions

Novak discussed long-term measures at the meeting with oil companies on Sep. 22 but they failed to come to any agreement, sources say. One of the companies’ demands included the return of the buffer mechanism subsidy. The scheme was adopted in 2019 following a similar fuel crisis.

Experts say the return of the subsidy may not be enough, and there should be other measures to stabilize the domestic market. The package could include the coordination of refinery maintenance schedules that the Russian Anti-Monopoly Service has been pushing for, the optimization of oil products stocks to meet higher demand during the summer, exporter licensing and amendments in taxation and price formation.

Meanwhile, to ease the pressure, the government issued exemptions from the ban for exports of marine fuel, gasoil and middle distillates, as well as for products that at the moment the government resolution was issued on Sep. 21 already had permissions for railway and pipeline exports, as well for tanker loading.

The ban should remove 1 million barrels per day of Russia’s motor fuel exports, 80% of which is diesel.

Source: Energyintel.com

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