ANATOLY GOLOMOLZIN ON TRENDS IN OIL PRODUCTS MARKETS IN RUSSIA, SIBERIA AND FAR EAST

Deputy Head of FAS informed on the measures regarding sale of motor fuel in the markets of the Russian Federation. He also pointed out the specifics of the Siberian Federal District, particularly, in the Irkutsk region, and the Far East Federal District due to logistics and increased fuel supplied costs

On 20 June 2019, during a working visit, Deputy Head of FAS Anatoly Golomolzin chaired a meeting with representatives of FAS, SPIMEX, “Rosneft”, “Gazpromneft”, independent fueling stations networks of the Irkutsk region and neighboring regions to discuss the situation on the oil products markets.

The Government of the Irkutsk region and Irkutsk OFAS reported on monitoring in the region, particularly emphasized the stable pricing. Representatives of vertically-integrated companies informed about honouring the undertaken obligations and sufficient supply of fuel resources in the large wholesale segment on exchange and in the small wholesale segment. Representatives of the small wholesale and retail markets of fuel-and-lubricants in the Irkutsk region talked about the need for bigger supply of oil products for sale through the exchange and the importance of developing such market performance mechanisms that would guarantee sustainable retail business.

“For many previous years prices in retail had a tendency to change at the rate close to inflation and there are no grounds to amend the trend. The threshold small wholesale prices were set under the agreements with oil companies. In fact, prices in the small wholesale segment were lower that the thresholds during the agreement validity period from the end of 2018 to June 2019. Prices in both the large and small wholesale segment were changing depending on market trends and the demand-supply balance”, explained Deputy Head of FAS.

Characterizing the situation on oil products markets, he pointed out that it depends on the world trends, seasonal factors and economic situation. Sufficient supply of fuel to the domestic market is essential.

“FAS and the Ministry of Energy constantly monitor and control sufficient supply and stocks of fuel on the domestic market. Summer months are the period of refineries repair, at the same time petrol stock is now approximately at the level of last year, and for diesel fuel – slightly higher that in the similar period of 2018. The volume of supplies of both petrol and diesel fuel since the beginning of 2019 till present is higher than in the same period last year”, described Anatoly Golomolzin.

The participants specially analyzed the issue with surrogate fuel.

“For a long time nobody was able to evaluate the volumes of such fuel on the market. After tightening the Regulations on middle distillates, the results of 2018-2019 made clear that surrogate fuel accounted for around 20-25% of the total domestic market. With completing modernization of oil refining, problems with diesel fuel should become a thing of the past. Large refineries are shifting to new methods of oil refining and producing diesel fuel. Hopefully in the new 1- 1.5 years the issue will not be as pressing as it used to be in the past and later on the problem will disappear”.

“Wholesale prices are volatile, they fluctuate. Prior to the growth of prices in May- June 2019, there was a more significant drop in January – April 2019. The difference between wholesale and retail prices in January – April was 40-45%. Retail chains had never had such marginal profit in the previous periods. In May – June we are during the seasonal growth of wholesale prices, and marginal profit decreased; nevertheless, the situation is more favorable for retail chains than in the same period last year”, detailed Anatoly Golomolzin.

“Taxes continue playing a crucial role for the trends on the oil products markets. Adjustment of the tax maneuver parameters is currently under discussion. The point is to decrease the striking price (petrol-56, diesel fuel-51) by 4000 RUB. It will reduce pressure on wholesale and small wholesale prices. It is also expected that factors underlying sudden tax treatments changes for doing business in the sector of oil and oil products supply will be removed”, continuedDeputy Head of FAS.

He added that “the authorized bodies are discussing with the Government stimulation of competition in Siberia and the Far East. One of the options was a proposal to set the tariffs for oil products transportation by rail at the low threshold of the possible tariff corridor. We have now settled upon the need for tax stimulation through additional tax deduction on the excises for the oil used for processing at refineries and supplies of oil products to the Far East. This measure will have a positive effect not only on the regions in the far East but also in Siberia”.

Anatoly Golomolzin outlined further improvements of on-exchange trade.

“A possibility to increase the norms for large wholesale sales on exchange in the joint order of FAS and the Ministry of Energy is now under discussion: побензину from 10 to 15% for petrol and from 5 to 7.5% for diesel. The final decision can be made around 1 July. Perhaps the increase will not be necessary if independent companies trade oil products through the exchange evenly on a regular basis. Currently, only vertically-integrated companies that have the dominant position on the relevant markets have such obligations”.

“Expanding the scope of trade with deliverable futures for oil products can play an event bigger role in increasing trade liquidity. This tool enables hedging risks of oil products price fluctuations and increases pricing transparency. Now deliverable futures are traded for the coming 1, 2 and 3 months at the Alagavut balance point, the volume of trade are increasing ad the range of traded products is expanding. There are plans to get to 6 months and 1 year sales patterns. In this context, amendments to the joint order of FAS and the Ministry of Energy are under discussion in the part of the need to register the volume of trade with deliverable futures  in the norms for sale liquidity”, continued Anatoly Golomolzin.

“There are arrangements with the Exchange and “Rosneft” that the company will return to wholesale sales through the exchange in addition to large wholesale trading. It has to be done in a way that both Siberia and the Far East can work with all these tools”, explainedDeputy Head of FAS.

The participants considered possible solutions aimed at stabilizing the trends on the oil products markets in the region and decided to form an standing Working Group under the frame of the Agreement between FAS and the Government of the Irkutsk and the Regional Road Map for competition development to monitor the regional fuel market and work out solutions towards developing markets in this sector.