Interview Given by Ivan Khomutov to Journalists of the Echo of Moscow Radio Station
The sudden increase in the price of gasoline sold by Russian refineries in May 2019, together with an accompanying increase in the prices quoted by petroleum depots, has caused a degree of consternation on the market: those increases, set against the background of stable, state-controlled fuel prices at filling stations, have brought about a sharp reduction in fuel sales margins. On May 17, the Russian Fuel Union (an association of independent filling station owners) asked the Government to intervene and take steps to stabilise the situation. A few days later, the Federal Antimonopoly Service of the Russian Federation announced it saw no reason to increase gasoline and diesel prices at rates higher than inflation.
Ivan Khomutov, General Director of Petromarket RG, was invited to discuss the situation live on Echo of Moscow’s “Scanner” programme. Ivan Khomutov began by sharing his expert opinions on the state of the market and the reasons for the current situation. He also made a forecast of its probable outcome.
Ivan Khomutov reminded us that from January through to April 2019, the refinery selling price for gasoline was consistently low. The reason for that was the state requirement for oil companies to supply a minimum volume of gasoline to the domestic market. This requirement created an imbalance of supply and demand in the fuel market and forced oil refineries to sell gasoline at a huge discount relative to their export alternative. This resulted in a number of technologically-advanced refineries producing high-quality Euro-5 standard automotive fuel for the domestic market and ending up making a loss. According to Petromarket RG estimates, the extremely high levels of loss-making continued for a period of four consecutive months from the beginning of 2019. The damping mechanism, which the government introduced as a means of ensuring that oil refining margins remain sufficiently high, turned out to be less than perfect and could not therefore solve the problem.
Such a situation, at least in the opinion of Ivan Khomutov, calls into question the desirability of investing in the modernisation of oil refineries. This is because the objective of modernisation is to increase the output of high-quality motor fuel products, which in the current situation have to be sold at a loss. It is therefore simpler for refineries not to modernise at all and to focus on the export of low-quality products. In fact, under the circumstances currently prevailing in Russia, it is the export-oriented enterprises with low levels of technological development that are just about managing to stay profitable.
Accepting that the situation at the end of April 2019 was unhealthy, the Ministry of Energy of Russia decided to relax the recommendations for oil companies on the volume of motor fuel to be supplied to the domestic market. The plan was to allow the stocks of excess gasoline in the country to be run down and in doing so help solve the problems of gasoline refinery marginality. However, these actions provoked an increase in the selling price of gasoline at oil refineries, followed by an increase in the prices of gasoline available at petroleum storage facilities, which then became a matter of concern for independent filling station networks.
Considering the possible outcomes, Ivan Khomutov predicted that it is hardly worth expecting any noticeable increase in gasoline prices at the filling stations in 2019, since prices will almost certainly be strictly controlled by the regulator. However, the appearance of marginality issues at filling stations is a distinct possibility.
Learn more about this and also about
- whether the Russian economy is becoming more feedstock-based,
- whether Russian oil processing is becoming a backward industry or is still sufficiently developed,
- and how likely the scenario of independent filling station networks leaving regional markets actually is,
in the 20-minute interview.