Exchange sales of gasoline may decrease fivefold

Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, commented to the Business FM on the likely consequences of the proposed reduction in the sales quota for gasoline and diesel fuel on the St. Petersburg Exchange from 10% to 2% of production volume:

“This is bad news for the market, because reducing the quota to 2% will make pricing in the petroleum products sector on the St. Petersburg Exchange illiquid.” Of course, some price will be formed within the remaining trading rounds, but it will be rather abstract and in no way connected to the real balance of supply and demand. It will be a very conditional price that hardly anyone would dare to rely on in their contracts. This is also problematic from a taxation perspective, because the mechanism for resetting the damper is tied, in particular, to the wholesale price. Secondly, this is, of course, a severe blow to independent retail, because exchange trading was the main mechanism for the physical acquisition of gasoline and diesel fuel for independent gas stations and independent oil depots. A reduction to 2% means they will have to somehow negotiate directly with oil companies, which, as a rule, are not eager to sell these volumes, especially in the context of a general shortage, when their absolute priority is to supply their own gas stations and to comply with the government’s recommendations regarding supplies to farmers, government agencies, and so on. And this could have a very serious impact on fuel supplies in a number of regions where independent gas stations predominate, including, in particular, almost the entire south and some regions of Siberia.

The logic behind this decision is clear. Currently, in essence, there is a transition from market‑based distribution of petroleum products to a highly conditional state plan, where the government itself determines the target demand structure and what volumes need to be distributed. Naturally, in conditions of shortage, it is easiest to obtain these additional volumes from the exchange, since there is probably no other source — at least not one of such a large scale. Indeed, this will help ensure that fuel is available to farmers during the sowing of winter crops, various government agencies, the army, and the railways — those consumers for whom the state considers supply to be a top priority. However, in addition to independent retailers, many private car owners will also be at a disadvantage, because as a result, fewer petroleum products will be supplied to gas stations. Gas stations owned by vertically integrated oil and gas companies will probably not be affected by this, but independent gas stations, which account for a very significant share in many regions — including even in the capital regions — may lose substantial physical volumes. If they manage to buy petroleum products somewhere, it will be at an inflated price. That is, this will lead to an even greater increase in average retail prices. It seems to me that this is still at the discussion stage. If a decision is made, it indicates that we are very far from ending the crisis".