Prices for Russian oil at loading ports have stabilized around $70 per barrel, almost aligning with the average level projected for 2024. While production volumes may have slightly decreased, they are down only marginally. The only factor weighing down payments is a stronger ruble compared to two years ago.
Taking this into account, oil companies may transfer over 730 billion rubles to the budget from the main industry-specific mineral extraction tax (MET) for March (to be paid in April). In addition, payments for the additional income tax (AIT) will be made in April for the first quarter of this year. In January and February, prices for our oil were relatively low—$40.95 and $44.59 per barrel—thus, the payment volume will hardly exceed 300 billion rubles. Revenues from the gas sector are likely to remain stable at around 170 billion rubles.
As a result, total income from the oil and gas sector in April could surpass 1.2 trillion rubles. However, the budget also allocates subsidies to oil companies—reverse excise taxes, investment tax deductions, and other compensations. Their amount is also expected to rise. Based on projections for 2024, considering the ruble's exchange rate, it could approach 130 billion rubles.
Additionally, there is the dampener—compensation from the budget to oil companies for supplying fuel to the domestic market at prices below export levels. The amount of dampener payments is directly proportional to the difference between the export alternative (European prices) and the indicative conditional price set by the government for the domestic market for the year.
The dampener can also turn negative. If the export price of fuel falls below indicative prices, oil companies must compensate the budget for the resulting difference. This scenario occurred in January, where oil companies paid 18.8 billion rubles under the dampener in February. Following this, Deputy Prime Minister Alexander Novak instructed the Finance Ministry and the Energy Ministry to analyze proposals for adjusting the mechanism to adapt it to new market conditions and support the profitability of oil refining. Consequently, due to events in the Middle East, global oil prices surged, reverting the dampener to a positive state for oil companies.
As of March, budget revenues from the oil and gas sector could rise to levels considered very successful for the industry in 2024.
Based on projections for 2024 and considering the exchange rate, dampener payments for March could total around 150 billion rubles. Reuters estimates the potential payout at 130 billion rubles. Consequently, budget revenues from the oil and gas sector in April (covering March payments) may reach approximately 900 billion rubles. In January of this year, total revenues were 393.3 billion rubles, while February saw 432.3 billion rubles.
This leads to two questions. First, is there a risk that the government, in light of the expected budget deficit, may alter the dampener payment regulations, potentially disadvantaging oil companies by reducing their payments? It is evident that the crisis in the Middle East is unlikely to last long, with many countries and powers interested in its swift resolution. Following this, oil prices may drop, possibly back to early-year levels (around $60 per barrel). Even considering a reduction in the discount on our oil, as reported only by Western news agencies so far, it could stand at $40-50 per barrel or lower. Consequently, budget revenues from oil would diminish, although there is currently an opportunity to generate additional billions in the treasury.
However, as Dmitry Gusev, Deputy Chair of the Supervisory Board of the "Reliable Partner" association and a member of the expert council for the "Russian Gas Stations" competition remarked in a conversation with "RG," the dampener is essentially the sole stimulus measure for oil refining in Russia. Refineries need to be supported; we do not want to find ourselves without fuel. Moreover, everyone remembers how the last attempt to halve the dampener for oil companies ended (the fuel crisis of autumn 2023).
A similar opinion was expressed by Sergey Tereshkin, General Director of Open Oil Market. An increase in dampener payments will not pose a serious issue for the budget, as not only will subsidies for refineries rise but revenues from the MET on oil will also increase. Likely, the rules around subsidy calculations will not change in the coming months.
According to Sergey Frolov, Managing Partner at NEFT Research, making urgent adjustments to the Tax Code is currently unwise, as it is uncertain how long the Middle Eastern crisis will persist.
The second question pertains to fuel prices in the domestic market. Since early March, exchange prices for gasoline and diesel fuel (DF) have been rising, reaching record levels for this year and gradually approaching peak values last seen in autumn. In the retail market, the Russian domestic fuel sector is under strict regulatory oversight intended to prevent prices at gas stations (GS) from rising above inflation. However stringent the control may be, gas stations primarily purchase fuel through exchanges or from oil storage facilities, which in turn are influenced by spot market trends, heavily dependent on export alternatives (fuel prices for international shipments).
Should gas station prices surge significantly, the government could swiftly reinstate a full ban on fuel exports.Currently, Rosstat records moderate price increases at filling stations, slightly trailing behind average consumer inflation. However, changes can occur rapidly. The Moscow Fuel Association has already noted a sharp rise in gasoline prices at capital gas stations—on average, an increase of 21 kopecks for AI-92 and AI-95.
Experts are calm on this matter. Frolov explains that there are two reasons for the rise in exchange prices for fuel. The first is a seasonal factor. Fuel consumption is increasing in both the private sector and the freight transportation sector, along with significant consumption growth in agriculture due to the onset of fieldwork. The second reason is situational. The sharp rise in oil and oil product prices, associated with the U.S. and Israeli attacks on Iran, could not but affect Russia, one of the world's largest producers and exporters of oil products. However, the effects will be somewhat cushioned by the dampener mechanism. Furthermore, the government always retains the option of implementing a complete ban on fuel exports, which would halt price growth. Thus, it is all in the hands of regulators, and the key is not to delay making necessary decisions, as has occurred in past years.
Although Tereshkin believes that new export restrictions are unlikely. The increase in subsidies and the growth in revenues from oil product exports will lead to enhanced profitability of oil refining. This should alleviate price pressures in the domestic market. Therefore, the need for oil companies to "inflate" wholesale prices to gain additional revenues should reduce, allowing for more stability in the retail market. Overall, somewhat paradoxically, the rise in global oil and oil product prices might temporarily stabilize the fuel market in Russia, the expert observes.
Source: RG.RU
