How Restrictions on Fuel Trading Should Help with Supply at Service Stations

End users include gas stations (GS), processing enterprises, and large companies with significant vehicle fleets (for instance, transport, mining, agriculture, and others).

Transactions for third parties will be permitted for brokers, whose number is limited to trading participants who are members of the exchange in the "Oil Products" section. If it is discovered post-transaction that there was an attempt to resell fuel purchased "for personal needs," access of such a buyer to trading will be revoked. The same rule applies to brokers.

Furthermore, as of July 1, the volumes of mandatory gasoline sales on the exchange for oil refineries have been reduced from 15% to 10% of production volumes. A similar measure is now under consideration for diesel fuel—reduction from 16% to 10%. This action aims to facilitate more direct transactions, bypassing intermediary exchanges. For example, direct supply contracts between gas stations and oil refineries.

This decision was made by the exchange against the backdrop of fuel supply issues in regions and a sharp rise in prices at gas stations. Earlier, at a government meeting, Deputy Prime Minister Alexander Novak stated the need to refine the exchange trading system so that fuel goes directly to end consumers, eliminating intermediaries who drive up prices.

Formally, everything makes sense: the fewer middlemen (traders), the lower the price should be, as each adds their "interest" to the cost of every liter. The problem is that the role of the exchange in our fuel market has collapsed this year. In July 2023, the volumes of exchange sales of gasoline and diesel fuel decreased by more than half compared to the same period last year. Meanwhile, consumption of fuel in Russia has not decreased. This means that trade has shifted to other channels. Over-the-counter sales are, in fact, not constrained by the state at all. They can be direct: GS-Refinery, or they can go through traders.

As noted in a conversation with "RG" by Dmitry Gusev, Deputy Chairman of the Supervisory Board of the "Reliable Partner" Association and member of the Expert Council of the "GS Russia" competition, the main price indicator of the fuel market is currently small wholesale transactions (outside the exchange), which have become a major factor driving up prices. As a result, a situation arises where prices on the exchange are relatively low, at major oil company gas stations they too are low, but in the small wholesale sector, costs can reach up to 200,000 rubles per ton. In the current situation, clear and understandable operational mechanisms need to be introduced, rather than playing at a market economy. A system of state regulation of the fuel market, utilizing big data and artificial intelligence, is more effective and independent of human factors and informational backgrounds. The exchange is heavily dependent on these factors, emphasizes the expert.

On the other hand, traders did not appear out of nowhere. Firstly, they benefit from economies of scale. Many independent gas stations (over half of the gas stations in Russia), which do not belong to major oil companies, simply cannot afford to acquire their own storage facilities, enter into contracts with refineries, and manage transportation. For them, this would be an unbearable financial burden.

According to energy expert Kirill Rodionov, traders are the traditional scapegoats in the market. Whenever price increases are discussed, it always seems that they are to blame. In reality, traders are a natural part of any market, including fuel. They are intermediaries with financial and logistical resources for purchasing fuel on the exchange and subsequently reselling it to gas stations. The efficiency of using traders depends on the level of gasoline sales on the exchange. The more sales that occur, the more fuel will be available to independent fuel retail at reasonably acceptable prices. The current problem is a shortage of fuel supply in the market. If the supply on the exchange increases and traders are attracted, they can balance the market and reduce the significant price dispersion among various gas stations, believes Rodionov.

Sergey Tereshkin, CEO of Open Oil Market, shares a similar opinion: the fuel market cannot exist without traders. The role of traders is somewhat derived from exchange regulations: the higher the norm, the more significant role traders can play in stabilizing the market.

However, the current supply is limited, so any thoughts of increasing exchange regulations can be set aside for now. Moreover, according to analyst Sergey Kaufman from FG "Finam," reducing fuel sales regulations only indicates that even vertically integrated oil companies (VINC) that manage the entire production cycle—from oil extraction and processing to selling fuel at their gas stations—do not have enough gasoline to fulfill all their standard obligations. In such conditions, VINC must send less fuel to the exchange to ensure their gas stations are supplied with gasoline.

Kaufman believes that the limitations on regulations and new trading rules on the exchange will not affect retail gasoline and diesel prices. This does not increase the overall quantity of fuel in Russia, but merely alters the logistics slightly. In some cases, this might expedite fuel delivery to end consumers. However, the primary issue at the St. Petersburg exchange remains the physical shortage of fuel. Trading volumes have noticeably declined, and prices are artificially capped (a step rule of 0.01%—the maximum possible price increase per day). This often makes it physically impossible to purchase the required volume of fuel. With the restoration of oil refining, the fuel market could return to normal relatively quickly, and retail gasoline prices could decline relative to the current abnormal values, the expert believes.

This situation poses the greatest risks for independent gas stations, according to Tereshkin. Exchange trading could quickly recover after restrictions are lifted. The question remains as to how the pool of end buyers of fuel from the exchange will change: many independent gas stations without direct access to fuel supplies may not survive this current crisis, he suggests.

Rodionov believes that traders are also at risk. Some companies may disappear. The market and exchange trading will recover very quickly. As soon as the restrictions are lifted.

However, the timeline for this is still unknown. The restrictions on gasoline purchases solely by end consumers have been established indefinitely. Meanwhile, the regulations on gasoline sales on the exchange have been lowered until September 30, although this measure may be extended if necessary.

Source: RG.RU