HomeMediaMedia PublicationsAnalyticsThe test by barrel. Why is oil getting cheaper and gasoline getting more expensive?

The test by barrel. Why is oil getting cheaper and gasoline getting more expensive?

12 February 2021

Salikhov Marcel R. President, Principal Director on Economic Studies, Head of the Economic Department
Тип: Analytics

The newspaper “Argumenty i Fakty” published an interview with Marcel Salikhov, President of the Institute for Energy and Finance on the situation at the fuel market on the topic “The test by barrel. Why is oil getting cheaper and gasoline getting more expensive?”

The Far East has been in a state of fuel collapse all last week. There were kilometer-long queues at gas stations, prices soared to 100 rubles, one person was given no more than 20 liters, even ones had to use the emergency reserve.

Why did such a situation become possible in a country that is sometimes called a "gas station"? What's in store for gasoline, oil and gas prices in 2021? The AIF correspondent discussed these topics with Marcel Salikhov, President of the Institute for Energy and Finance.

- Marcel Robertovich, what happened in the Far East?

- The reason was the lack of fuel. The Khabarovsk Refinery, one of two refineries supplying fuel to the Far East, has stopped for repairs. It took longer than planned. As a result, the fuel reserves were insufficient for the downtime. Moreover, there was a rush demand for gasoline: fearing that tomorrow it might not exist, people began to buy for future use. It was possible to buy fuel at the filling stations of large companies, but long queues formed there, and someone began to sell places in them. At the same time, they began to sell cans of gasoline via the Internet. I don't know how legal such actions were, but from the economic point of view, this is how the market mechanism works. If a product is in short supply, the market will seek balance by increasing the price. Of course, this shouldn't happen. Companies that take out refineries for repair need to create excess reserves in order to hedge against possible technical problems. Since this week, the Khabarovsk refinery has been operating as usual, and the deficit will soon disappear. The situation is very unpleasant, but I would not say that this is a systemic problem with the provision of fuel to the Far East.

- Is it possible to repeat the situation in other regions?

- It is unlikely ... There are more oil refineries in other regions, and the logistics are simpler - you can deliver fuel both by rail and by road. In general, more gasoline and diesel is produced in Russia than is consumed. There is no fuel shortage problem. Another thing is at what price it will be sold.

- Last year, oil prices fell sharply, while gasoline prices continued to rise (unlike in other countries). How it is? And what will happen to prices this year?

- We have a weak connection between the situation in the global and domestic oil product markets. One of the reasons is the ruble exchange rate. When oil becomes cheaper, but the value of the Russian currency also falls, the price of a barrel in rubles does not decrease so much, and sometimes does not decrease at all. That is, raw materials for oil refining are not getting much cheaper.

The second reason is related to the tax policy of the state. The share of taxes in the retail price of gasoline is 50-60%. These are VAT, excise taxes and the so-called damper - a mechanism that the government proposed to stabilize the cost of gasoline. It was several years ago, when oil was very expensive, which led to an increase in the cost of gasoline in Russia. The damper works as follows - when oil prices on the world market are high, oil companies receive money from the budget so as not to raise the cost of gasoline and diesel on the domestic market. If quotes for raw materials fall below a certain level, companies already pay to the treasury.

In 2021, with an increase in oil prices, this mechanism will not allow fuel to rise in price significantly. I think, that gasoline prices will rise by 3-4%.

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