Global oil market and the “gasoline crisis” in Russia

The recovery of the global economy, which followed the financial crisis, determined the impact on the global oil market.

Increased oil demand due to high rates of growth of the global economy, in particular, the economies of China, India and other Asian countries, rather prudent OPEC policy towards raising the oil production by its member states, as well as lower rates of growth of oil production outside the OPEC led to a significant increase in world oil prices compared with last year. Events in North Africa and the Middle East that led to increased geopolitical risks and the reduction of oil supplies from Libya dealt a significant impact on the rise in oil prices. As a result, the price of Russian oil in the world (European) market increased from 78.3 dollars per barrel in 2010 to 111-119 dollars per barrel. Due to the rise of world oil prices the price of the Russian natural gas also went up (from 296 dollars per thousand m3 in 2010 to 328.3 dollars per thousand m3). This greatly increased the revenues of Russian oil and gas companies and proceeds to the state budget.

The April-May “gasoline crisis” was an extraordinary event for Russia. It manifested itself in an acute shortage of gasoline in certain regions. This situation resulted from the increase in exports of gasoline and reduction in supply on the domestic market. In this regard, in order to restrict the export and saturation of the domestic market export the tax on gasoline for May was increased by 44% (from 67% export duty on crude oil up to 90%). In addition, major oil companies have committed themselves not to ship gasoline for export in May.

The analysis demonstrates that the main reason for the gasoline crisis was the incorrect government pricing policy, namely, freezing of petrol prices on the domestic market. In January this year due to rising world prices and growing excise tax rates, domestic prices on petroleum products also went up. But already in early February, the government prescribed oil companies received a clear line of action directed at setting lower prices for gasoline and diesel fuel, which resulted in the prices to go down.

At the same time, prices of crude oil and petroleum products grew rapidly. The price for Urals on the European market went up from 89.5 dollars per barrel in December 2010 to 119.2 per barrel in April, or by 33%. Price of petrol in the European market (minus indirect taxes) increased during this period from 0.566 Euros / liter to 0.738 Euros / liter, or by 30%. In Russia, the domestic price of gasoline (the manufacturers’ price) in April was below the level of  December by 1%, while the retail price of petrol AI-92 went up only by 0.5% (consumer price growth for goods and services during this period amounted to 4.3%). As a result, export turned out to be much more profitable than supplies on the domestic market and the oil companies, reacting to this situation, raised gasoline exports. According to the Federal State Statistics Service, in QI 2011, exports of gasoline compared to the corresponding period of last year increased by 9.3%, while the share of exports in gasoline production went up to 14.7%

At the same time, as a result of price caps some shifts in production structure took place in favor of other petroleum products, whose prices were not limited, primarily heating oil and naphta, and production of motor gasoline declined.  Introduction of new technical standards for fuel played a certain role: some oil companies have been unable to replace production of low-grade gasoline with production of Euro-3 gasoline, which led to a fall in gasoline supply.

Thus, a number of important factors in the state price policy in the oil market were not taken into account that actually led to a situation of "gasoline crisis ". Under these circumstances, in May, the administrative pressure on prices was eased, and gasoline prices rose markedly. Since May deficit of gasoline in some regions was observed, in order to saturate the domestic market the government decided to maintain the June restrictive export tax on gasoline at the rate of 90% export duty on crude oil. This rate was also extended to naphta.

Yu.N. Bobylev – PhD in economics, Head of Mineral Economy Department

Please see in detail “Economic and Political Situation in Russia in May 2011”.