28 May.2019

No Profit: Will Gasoline Sales at the Filling Stations Soon Become Unprofitable? Interview Given by Ivan Khomutov to the RBC-TV Channel

General Director of the Petromarket Research Group was invited by the RBC-TV television channel to appear on its “What Does It Mean?” programme, in order to comment on the growing tension in the Russian fuel market. The programme was dedicated to the increase in wholesale prices for gasoline and the sharp fall in fuel sales margins at the country’s filling stations.

In the interview, Ivan Khomutov pointed out that the increase in refinery prices, which began sometime in the second decade of April, was associated with the actions of the state regulator, which at the end of 2018 had relaxed the requirements for oil companies in terms of the volume of motor fuel supplied to the domestic market. That led to a significant reduction in the surplus of gasoline on the domestic market – a situation which lasted for the first 4 months of the year. It was this surplus that effectively “crushed” the domestic price of gasoline and pushed a number of oil refineries into the red.

The increase in refinery prices occurring in April and May then had a negative effect on filling station marginality and with stable retail gasoline prices held down by the regulator, wholesale prices quickly gathered pace to reduce the profitability of fuel sales at the filling stations. By mid-May, profits had fallen dramatically, though they continued to remain above zero.

Finally, in the third decade of May, the growth in wholesale prices levelled off and the market stabilised. Ivan Khomutov believes, however, that the risk of a further increase in refinery prices still exists; for the filling stations, this could mean gasoline sales margins actually turning negative.

One solution to the problem could be the adjustment to the damping mechanism, which came into force on January 1, 2019; this aims to curb increases in the refinery price for motor fuel. The mechanism involves the payment of funds from the state budget to refineries, as compensation for lost profits from the supply of motor fuels to the domestic market. At the present time, the level of compensation is not nearly enough to hold down prices, so the onus is now on the regulator to increase it.