The reduced shock absorber in the Russian Federation creates conditions for an increase in wholesale gasoline prices and a loss of margins for gas stations

MOSCOW, May 22 (Reuters) – A government-promised halving of motor fuel subsidies could lead to a significant increase in wholesale gasoline batch prices, forcing gas station operators to raise prices faster due to losses, market participants say.

The state uses the suppressive surcharge on the oil excise tax to stabilize the cost of fuel in the Russian market by compensating oil producers for the difference in the conditional price with export parity. The Ministry of Finance of the Russian Federation announced in late April its intention to adjust the shock absorber formula to halve payments to refineries in the period from July 2023 to July 2024 in order to save budget expenses.

From the beginning of April to the present, the cost of wholesale batches of AI-92 has increased on average by 7,800 rubles per ton (+17%), AI-95 – by 9,700 rubles per ton (+19%).

Prices for wholesale volumes of gasoline on the Russian market are in balance with the calculated export alternative, which takes into account the shock absorber, traders say.

“Since the beginning of the year, we have a large backlog (of domestic prices from the alternative), but in recent months the market has corrected everything. Now gasoline (in the Russian Federation) is sold at a small premium over the alternative – this ensures stability, ”shares his estimates from a Russian oil company specialist.

According to him, reducing the silencer will disturb this balance, worsen the economy of refineries and force them to look for ways to make up for losses at the expense of price, at the expense of buyers.

“The shock absorber loss is too sensitive, so it will automatically affect prices – just a mirror image, and pretty soon (prices) will skyrocket. As soon as the shock absorber is cut off, then in a maximum of a month, everyone will recover the price one way or another,” the source added.

In his opinion, the resulting losses in gasoline will force refineries to reduce supply on the domestic market, limit the production of commercial gasoline, and increase the volume of unprocessed heavy gasoline, which will be exported.

The value of the shock absorber for April gasoline deliveries to Russian consumers amounted to 15,544 rubles per ton. In May, the preliminary size of the gasoline shock absorber is 12,456 rubles per ton. If today the factor of 0.5 was applied to the muffler, which the Ministry of Finance intends to apply from July, the increase in the average wholesale price of AI-92 could be 11% -15%, AI-95 – 10% – 13%, i.e. from 4.4 to 5 .9 rubles per liter, according to Reuters calculations.

Such an increase in prices will make the margins of gas stations, which broke records last winter, negative. According to Reuters, the margin of gas stations already at the end of May fell to 5 rubles per liter for AI-92 and 3 rubles for AI-95 from 16-20 rubles per liter on average in winter.

However, in the event of an increase in wholesale gasoline prices, it is unlikely that a similar increase in retail prices will be possible due to the opposition of the Antimonopoly Office (FAS), say retail market participants.

“No one will let us collect 5 rubles – FAS will not. This is only possible evenly within inflation. If now (inflation) is called 6%, then it is possible (increase) by 0.5% – provides a source in the oil company

Other retailers are also confident that regulators will not release prices.

“They won’t give you a raise. They (FAS) are constantly reminding us of the colossal margin that has held up since last year. And they don’t want to hear about the three years of losses we were in before. You can get 25 kopecks (per month)… that means that in 20 months we will collect only 5 rubles (increase),” says a tanker from the Central Federal District.

Participants in the retail market are sure that a very difficult period awaits them in the summer.

“We are looking forward to a fairly rapid increase in wholesale gasoline prices, retail howls due to working in the red, a moderate increase in the cost of gasoline at gas stations,” a source at the oil company shares his forecast for the summer.

According to him, the only hope is that in October wholesale gasoline prices will fall as the season of high demand ends and due to the increase in supply as repairs at the refinery are completed.