Page 6 - FSUOGM Week 29

FSUOGM COMMENTARY FSUOGM

Russia raises quotas for open-

market fuel sales

Authorities want to keep wholesale prices in check and safeguard against shortages

RUSSIA RUSSIA’S Energy Ministry and its Federal Anti- Returning to normality
monopoly Service (FAS) have agreed on raising A major factor behind rising wholesale prices
WHAT: the minimum amounts of gasoline and diesel has been a faster-than-expected recovery in fuel
Russia's energy ministry that suppliers are required to sell on the open demand following the easing the COVID-19
and its federal regulator market. restrictions. Some suppliers were caught una-
have agreed to raise the The move is aimed at keeping wholesale wares, having scaled back refining operations in
minimum amounts of fuel prices in check and safeguarding against response to low demand. A lot of seasonal main-
gasoline and diesel that shortages, following the sharp recovery in fuel tenance was also underway at plants, resulting in
suppliers have to sell on demand as coronavirus-related restrictions gasoline output slumping to a 15-year low in May.
the open market. were eased. In particular, the government wants Speaking last week, Russia’s deputy energy
to ensure that independent fuel retailers have minister, Pavel Sorokin, said he was hopeful
WHY: access to enough supply and at an affordable that gasoline production would recover to the
Authorities want to keep price. pre-crisis level this month. By the end of this
wholesale prices in Major fuel suppliers Rosneft, Lukoil and Gaz- month, the ministry expects output to be 3%
check, following a faster- prom Neft currently have to sell at least 10% of higher than the same time last year, and 16%
than-expected recovery their gasoline and 6% of diesel on exchanges – more than the level in June.
from record low fuel namely the St Petersburg International Mercan- Production amounted to 80,200 tonnes per
demand during the height tile Exchange (SPIMEX). They can face fines for day in June 1, but rose to 99,600 tpd by June 14
of Russia's coronavirus violating these antitrust rules. and 107,900 tpd by June 28, according to the
lockdowns. The quotas will now be raised to 11% for gas- ministry, reaching a height of 125,900 tpd on July
oline and 7.5% for diesel, the energy ministry 14. Further growth is expected in August, as the
WHAT NEXT: and the FAS said in a joint statement on July 17. relaxing of OPEC+ restrictions means oil firms
The energy ministry is These requirements will also apply to all refiners will have more spare crude to refine.
deciding whether to lift a and not only the dominant ones, and new meas- At the same time, though, the ministry is
ban on fuel imports. ures will be put in place to punish those that do forecasting a major surge in demand this month,
not comply. and has urged suppliers to export less fuel to
“The initiatives of the parties will be imple- avoid domestic shortages. It predicts that gas-
mented in a joint order as soon as possible,” the oline and diesel shipments overseas will drop
energy ministry and FAS said. to their lowest level in a year and a half in July.
FAS had earlier called for as much as 15% of Gasoline exports could plunge by 45% m/m to
gasoline and 9% of diesel to be sold on the open 115,000 tonnes, while diesel deliveries are seen
market, but the energy ministry argued that falling 10% to 2.4mn tonnes.
such a move was unfeasible. Some companies With demand and supply both now returning
with large filling station networks in relation to to normal levels, the Russian government plans
their refining operations, such as Gazprom Neft, to hold a meeting this week with oil companies
would have struggled to meet such quotas with- to discuss whether or not to lift a ban on fuel
out jeopardising supplies to their own pumps. imports. This ban was put in force in late May,
In a research note on July 17, VTB Capital to protect domestic refiners from cheaper for-
(VTBC) said the decision by FAS and the minis- eign competition, and had been due to remain
try was driven by the recent growth in wholesale in force until October 1.
fuel prices. In June, wholesale prices for 92 gas- Prices collapsed in fuel markets across Europe
oline in Central Russia rose by 23% month on as motorists stayed at home during lockdowns,
month, it estimated. causing demand to sink. But prices remained
At the same time, pump prices have remained high in Russia owing to the damper mechanism,
stable throughout the pandemic, owing to a making this a more attractive market for for-
so-called damper mechanism added to Russian eign refiners. Most of the extra gasoline that was
oil taxation last year. This has squeezed the mar- imported came from Belarus and Kazakhstan.
gins of independent fuel retailers. While Russia’s energy ministry does not
The damper mechanism is designed to avoid envisage any serious fuel shortages emerging,
spikes in fuel prices. It means that fuel suppliers pay with Russian gasoline demand still anticipated
extra tax into the budget when domestic oil product to lag 5% below supply, allowing fuel imports
prices are higher than export netbacks, but receive a to resume now that conditions are stabilising
subsidy when it is the other way around. would seem a prudent step. ™

P6 www. NEWSBASE .com Week 29 22•July•2020