Moreover, in May, trading volumes for A-95 gasoline even slightly declined compared to the end of April, which is contrary to expectations. A different trend is observed for A-92 gasoline, whose sales remain almost on last year's level and have been increasing since the end of April.
At this stage, it cannot be conclusively stated that the drop in trading volumes has affected wholesale or retail prices for A-95 gasoline. The price of this brand continues to rise both on the exchange and at service stations, albeit moderately. According to Rosstat, retail prices have increased slightly less than those of A-92 - 3.7% versus 3.8%. Both figures exceed the inflation rate since the beginning of the year (3.19% as of May 4). Exchange quotes are rising, approaching the highest levels seen this year but remain far from the historical highs of last autumn. However, the high demand season has only just begun. Last year, price growth on the exchange and at service stations accelerated at the beginning of summer, which is still half a month away.
The decline in exchange sales of A-95 gasoline amounts to twenty percent.
The Ministry of Energy is confident that the domestic market is currently well-stocked with light petroleum products (gasoline, diesel, and jet fuel), logistics operations are functioning steadily, and no regional supply disruptions have been recorded. Fuel stocks are at sufficient levels and will be utilized if necessary to smooth out demand and supply fluctuations. The industry is prepared to manage the seasonal demand growth period in a planned manner, officials emphasize.
However, in Russia, A-92 gasoline is traditionally regarded as socially significant. Yet, two or three years ago, it was often noted within the industry and expert community that A-95 had significantly overshadowed the cheaper A-92, particularly in urban areas. Furthermore, against the backdrop of developing domestic tourism, during the holiday season, demand for A-95 sometimes even exceeds that for A-92.
Given this, if the supply of A-95 gasoline has decreased on the exchange due to lower production, prices may start to rise, initially in wholesale and subsequently at pumps. If weak demand is to blame, prices in both wholesale and retail could stabilize or even decline. In this case, it would be a concerning signal for both domestic oil refining and the wider economy. There is, however, a third possibility; it could be that A-95 gasoline is being sold in wholesale through direct contracts bypassing the exchange.
Currently, regulations for exchange sales apply to fuel producers in Russia: 15% of production volume for gasoline and 16% for diesel fuel (DF), and these are being adhered to, noted Dmitry Gusev, deputy chairman of the Supervisory Board of the "Reliable Partner" Association, in a conversation with "RG". Thus, discussing a reduction in volumes may be premature. It is quite possible that sales have shifted to direct contracts or smaller wholesale transactions outside of the exchange. This is a valid and normal sales channel. The exchange isn't the only delivery channel for petroleum products in the domestic market. However, it serves as an indicator of market conditions.
Indeed, this raises questions regarding pricing. In Russia, there is an established practice of relying on the exchange. But, if the scenario proposed by the expert is accurate, it stops being a real indicator of market conditions.
At present, it is still premature to talk about declining demand. However, with closed production statistics for fuel, we can only speculate that there has been a sudden decrease. The issue might also lie in a shortage of certain additives or their high costs, as indicated by the expert.
It is plausible that the decrease is also linked to declining demand. According to Sergey Frolov, managing partner of NEFT Research, the cause of the reduced demand can be attributed to an economic downturn, extended May holidays (many preferred to take leave from May 1 to 17), and decreased supply due to ongoing unscheduled repairs at oil refineries.
However, refineries faced similar issues last year, and this year’s holidays were shorter. Thus, it is more likely we are witnessing a decline in demand from enthusiasts of automotive tourism.
Nonetheless, Frolov believes the situation hinges on the number and duration of unscheduled refinery shutdowns. Market conditions depend not on demand, but on supply. Increasing supply for A-95 might be possible through higher gasoline output at refineries and outside refineries by blending with various high-octane components. The conditions for this have been established by regulators. Additionally, supplies from abroad (potentially from Belarus, Kazakhstan, and China) are expected to increase.
Furthermore, as noted by Sergey Tereshkin, CEO of Open Oil Market, A-95 gasoline is not factored into budget subsidies for oil companies. Consequently, exchange quotes for A-95 display greater volatility compared to prices for A-92 gasoline and diesel. Regulators may mitigate these risks through export restrictions; however, the prohibitions on fuel exports have already become commonplace in the Russian fuel market.
The risks of price increases are likely to manifest most strongly after July, the expert suggests. In May and June, oil companies will, to some extent, adhere to fuel price stability, considering the announced agreements with regulators.
Frolov estimates that retail prices will be restrained within the range of "inflation plus 2%" (the increase in excise taxes at the start of the year).
Gusev urges a broader perspective on the situation, reminding us that the fuel market extends beyond gasoline and diesel. Liquefied petroleum gases (LPG) are also present, with prices determined by market conditions, unlike gasoline. In practice, wholesale and retail prices for gasoline and diesel are regulated by the state. At service stations, prices target a level aligned with inflation, and an increase above 0.01% is prohibited on the exchange. What this will mean for investments in oil refining remains uncertain, but we will find out in a few years' time, according to the expert.
Source: RG.RU
