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MOSCOW, December 27 Throughout 2023, the Russian fuel market was balancing between the authorities’ desire to save budget money by cutting subsidies to oil workers as part of the damper, and attempts to curb price increases in the domestic market. The performance was spectacular: at the peak of demand, prices for motor fuel hit historical records, and only extreme measures by the authorities allowed the market to find balance.
Fuel costs have been rising since spring. In September, the price of AI-92 gasoline on the exchange reached its peak values in the entire trading history of 70,508 rubles per ton, and diesel fuel — 75,036 rubles. The public outcry was so strong that the government had to temporarily ban the export of fuel.
After this, the situation stabilized, and by the end of the year, exchange prices dropped by half. According to the Ministry of Energy, fuel reserves are at an adequate level. But this is a temporary compromise. For greater stability, the market requires new solutions, experts interviewed are confident.
Clash with the Ministry of Finance
It all started in April, when the Ministry of Finance of the Russian Federation announced plans to further adjust the parameters of the fuel damper mechanism in July in order to halve the margins of oil refineries “inflated by budget funds.” This mechanism was created in 2019 to contain domestic fuel prices. If the export price of gasoline and diesel fuel is higher than the conditional domestic Russian price, then the state compensates companies for part of this difference so that they do not increase prices in the Russian Federation. And if Russian prices are higher than export prices, then oil companies share with the state part of their profits from domestic fuel sales.
The damper has been adjusted several times since the beginning of its operation. As in the past, the industry has greeted the new changes with dismay, fearing lower processing volumes at some refineries and subsequent fuel shortages. The timing of the adoption of the document was delayed due to the search for a compromise solution with the companies.
As a result, payments to oil workers from the budget were nevertheless cut in half. It was this decision, according to relevant experts, that became the reason for the rise in prices. “The constant demands of the Ministry of Finance about the need to compensate for shortfalls in budget revenues led to annual reductions in these damping payments, which led to a crisis situation in 2023,” said the head of the Russian Fuel Union (RTS) Evgeny Arkusha.
He recalled that the Russian oil industry had already faced similar problems in 2018. Moreover, then, as now, the crisis arose due to a conflict of interests between the budget and oil workers against the backdrop of high world oil prices. The rise in prices on the domestic market, according to the expert, provoked a tax maneuver in the oil industry, which was not implemented as originally intended.
In its current form, the tax system stimulates the export of petroleum products, which, in the face of rising world prices, becomes more profitable for both companies and the budget. But this leads to rising prices in the domestic market.
«In the original form of the tax maneuver, these negative factors leading to an increase in wholesale prices on the domestic market should have been compensated by a proportional reduction in excise taxes. If everything had gone as planned, then from next year excise taxes would have been practically zeroed out. But over these 10 For years, excise taxes not only did not decrease, but, on the contrary, grew every year,” Arkusha explained.
The authorities are looking for a way out
In the summer of 2023, a season of high demand for fuel, the crisis was already firmly entrenched: prices continuously rose at record rates. In response, regulators required companies to increase the volume of fuel supplies to the domestic market. The situation became especially tense towards the end of the summer, when, at the height of the harvesting campaign, farmers' complaints about expensive fuel reached deputies, who harshly criticized the situation. In September, prices for motor fuel on the stock exchange reached their peak values in the entire history of trading.
Soon after, the government introduced a ban on the export of petroleum products. They began to gradually ease the prohibition measures two weeks later, when their effect became visible — wholesale prices finally stopped the continuous increase. Later, the government returned fuel damper payments to oil workers in full and took a number of other systemic measures.
The topic of rising fuel prices reached the president by September. Deputy Prime Minister Alexander Novak then explained the situation by saying that in recent months world oil prices have increased, the discount on the Russian Urals grade has decreased, and the ruble has weakened against the dollar.
Russian companies and resellers now have an economic motivation to increase exports, including the so-called “gray” ones. “Gray” export refers to a situation where traders buy petroleum products at a price for the domestic market, and sell it for export at a higher price.
New compromise
The Ministry of Energy considers the situation on the fuel market to be stable at the moment. Inventories are at adequate levels. By the end of the year, exchange prices had fallen by about half from their record values; retail prices also slowed down and in some places even began to decline. The expert community also positively assesses the systemic measures taken by the government, but notes that they may not be enough to stabilize the situation in the long term.
To create incentives for long-term price reductions, it is necessary to sharply increase sales standards on the exchange: from 15% to 50% for gasoline and from 12.5% to 33% for diesel fuel, fuel market expert Kirill Rodionov believes. “Increasing standards will lead to a sharp increase in competition and lower prices on the stock exchange. As a result, fuel will become more affordable for independent gas stations, which is why large retail chains will not be able to raise prices without the threat of losing the market,” he shared this opinion with.
Without raising standards, oil producers will have no real incentive to reduce prices, the dynamics of which are also affected by the increase in fuel excise taxes, which have almost tripled over the past eight years, Rodionov believes. “The increase in excise taxes is one of the drivers of price growth. Therefore, most likely, next year the increase in retail fuel prices will reach at least 5%, that is, it will not be lower than the overall increase in consumer prices,” he said.
The head of RTS agrees that the minimum share of sales through the exchange should be increased. He also believes that the authorities need to continue working to solve problems with fuel transportation by rail, including introducing permanent subsidies for transportation in the direction of the Far East. In addition, it is worth limiting the ability of non-manufacturers to export gasoline and diesel fuel, including to the EAEU countries and other countries under intergovernmental agreements. To stabilize motor fuel prices, it is necessary to strengthen counteraction to unfair practices in the purchase of exchange-traded goods.
According to Arkusha, in order to prevent similar crisis situations in the future, the government needs to take systematic measures of tax and customs regulation to maintain the premium of the domestic market in relation to exports.
«This is the main thing, without taking such measures the market will constantly experience shocks,» he concluded.