As of November 13, all the oil companies participating in the domestic market of motor fuel, have signed a corresponding agreement. The first time it’s not just about retail, but also wholesale prices.
The reason increase in the netback is higher prices on oil in case of simultaneous devaluation of the ruble. If the raw material is expensive, to maintain the profitability of the refinery commensurate forced to raise prices on petroleum products. In the period from December 2017 to may 2018 netback motor fuel increased by 11 cents per liter. Previously, such a situation was not observed because of the increase in oil prices was offset by strengthening of the ruble.
Once the netback price soared, while retail prices rose slightly, oil refinery and gas station the problems started. To maintain minimum profitability retail, factories forced to set the internal wholesale price below the export alternatives. Because of this, the margins of many oil refineries was below zero throughout 2018. The producers are not always able to maintain demand for retail level wholesale price, what margin of gas stations for gasoline and diesel fuel goes into the negative zone. For example, in may a net loss of fuel stations amounted to four rubles per liter of AI-92, and in October – two rubles for diesel fuel. Independent gas stations in such conditions are the most vulnerable because they do not have support from other segments of the business chain.
Who will pay for low prices
Refineries and fuel filling stations of vertically integrated companies can compensate losses at the expense of oil production. This is what the regulator argues the requirements for cost containment. Indeed, in reporting a significant increase in profits over the past year, despite the problems in segments refining and marketing. To ensure control over the situation, the government demanded that the oil companies concluding agreements to freeze prices until the end of March 2019.
For each region set indicative level of the wholesale cost at the depots, and the deviation from it by more than 4% will be the subject of proceedings with the FAS. Regulation of the protected areas required to achieve a minimum gross margin of a gas station in the 2700 rubles per ton and profitability of independent operators.
Also provides for the collective responsibility of companies for cost containment: if at least one party to the agreement violates it, can be applied measures to restrict exports for the entire industry.
For example, can be increased the export duty on light oil products up to 90% from the duty on oil. In this case, the average margin refineries will decrease by $3 per barrel, whereas now it is near zero. Such an outcome unacceptable to the companies, so the terms of the agreements are likely to be strictly observed.
Back in the USSR
The scenario of direct regulation of wholesale and retail prices and the formation of a compensation mechanism for the refinery was spelled out in the study VYGON Consulting “gasoline Prices: back to the USSR?” in August 2018. Officials deny that they have such intentions, however, it seems that is the model of regulation that the state is moving.
As compensation to producers from 2019 will be introduced damping (stabilization) mechanism, which not only eliminates the increase in excise duties and VAT, but also minimizes the loss of the refinery from fuel sales on the domestic market.
The essence of the mechanism is made in the payment of companies 60% of the difference between the real export and fixed conditional netback price domestic market (50 to 400 rubles per ton of fuel). The amount of compensation depending on the macro parameters will reach about 10 000 rubles per ton, which is 80% of the excise tax on gasoline and exceeds the excise tax on diesel by 1.5 rubles per ton.
Such measures should stabilize the motor fuel market and limit price increases, but simultaneously with them came the order to work out an alternative damping mechanism. The reason for the correction is the lack of sufficient flexibility of the damper with a sharp change of macroparameters and the possible emergence of new imbalances in the economy of enterprises in the fuel sector.
In the current model of the market these kinds of problems cannot be ruled out. So you either need to charge the fuel in the wholesale and retail, by analogy with the gas market, or you can go to unregulated prices. However, the second option will lead to high price volatility, which is unacceptable to consumers.
Price fluctuations can be smoothed using a floating excise tax, whose rate depends on oil prices on the external market and the ruble. Suggestions on the application of such a mechanism repeatedly received from market participants, but the barrier every time, was the unpredictability of excise revenue to the road funds.
Now the relevant ministries are again instructed to study the possibility of using flexible rates of excise duty. The introduction of this mechanism will allow to return to a competitive market pricing with the preservation of balance of interests of refiners, gas stations and consumers.