How Fuel Trading Restrictions Should Assist with Supplies to Petrol Stations

End consumers are defined as petrol stations (PS), processing enterprises, and large companies with significant own vehicle fleets (for instance, transport, extraction, agriculture, among others).

Brokers will have the right to execute transactions for third parties, limited to trading participants who hold exchange member status in the "Oil Products" section. If a transaction reveals an attempt to resell fuel purchased "for personal needs," the buyer's access to trading will be suspended. The same rule applies to brokers.

Furthermore, from 1 July, the volumes of mandatory petrol sales on the exchange for oil refineries have been reduced from 15% to 10% of production volumes. A similar measure is currently being considered for DT - a reduction from 16% to 10%. This has also been implemented to facilitate more direct transactions, bypassing intermediary exchanges. For example, a direct supply agreement between petrol stations and refineries.

The decision was made by the exchange amidst fuel supply issues in the regions and a sharp rise in petrol station prices. Earlier, during a government meeting, Deputy Prime Minister Alexander Novak highlighted the need to refine the exchange trading system so that fuel could be distributed directly to end consumers, eliminating resellers who push up prices.

In principle, this is logical: the fewer intermediaries (traders), the lower the price should be, as each adds "their interest" to the cost of each litre. The issue, however, is that the role of the exchange in our fuel market has dramatically declined this year. In July 2023, the volumes of exchange sales for petrol and DT decreased by more than half compared to the same period last year, while fuel consumption in Russia has not decreased. Therefore, trade has now shifted to other channels. Over-the-counter sales are almost entirely unregulated by the state. These can be direct: PS to refinery, or they can occur through traders.

As noted in an interview with "RG" by Dmitry Gusev, Deputy Chairman of the Supervisory Board of the "Reliable Partner" Association and member of the Expert Council of the "Petrol Stations of Russia" competition, currently the main price indicator in the fuel market is small wholesale transactions (off the exchange), which have become a primary factor in price escalation. Consequently, a situation arises where exchange prices for fuel are relatively low, as are those at large oil companies' petrol stations, but in small-scale wholesale, the cost sometimes reaches 200,000 roubles per tonne. In the current environment, clear and transparent operational mechanisms need to be introduced rather than pretending to operate in a market economy. A system of state regulation of the fuel market utilizing big data and artificial intelligence would be more effective and less dependent on human factors and information backgrounds. The exchange, on the other hand, is heavily reliant on these factors, the expert emphasizes.

On the other hand, traders did not arise out of a vacuum. Firstly, they have the advantage of scale. Many independent PS (more than half of petrol stations in Russia), which do not belong to large oil companies, simply cannot afford to acquire their own fuel storage, conclude contracts with refineries, and ensure transportation. For them, this would impose an unbearable financial burden.

According to energy expert Kirill Rodionov, traders are the traditional scapegoats in the market. As soon as there is talk of price inflation, they are always blamed. In reality, traders are a natural part of any market, including the fuel market. They are intermediaries with the financial and logistical resources to procure fuel on the exchange and subsequently resell it to petrol stations. The efficiency of using traders depends on the level of petrol sales on the exchange. The greater the volume, the more fuel will become available to independent fuel retail at reasonable prices. Currently, the main issue is the lack of fuel supply in the market. If the supply on the exchange increases and traders are attracted, they can help balance the market and reduce the significant price discrepancies among various petrol stations, Rodionov believes.

A similar opinion is held by Sergey Tereshkin, General Director of Open Oil Market: the fuel market cannot exist without traders. The role of traders is in some way a derivative of exchange norms: the higher the norm, the bigger role traders can play in stabilising the market.

However, the supply is currently limited, which means that any growth of exchange norms is not foreseen for the time being. Moreover, according to analyst Sergey Kaufman from FG "Finam", the reduction in fuel sales norms merely indicates that even vertically integrated oil companies (VINC), which handle the entire production cycle—from oil extraction and processing to fuel sales at their petrol stations—are struggling to meet their standard obligations due to insufficient petrol supply. In such circumstances, VINC are compelled to send less fuel to the exchange to supply their own petrol stations.

Kaufman contends that the limits on sale norms and the new trading rules on the exchange will not affect retail prices for petrol and DT. This does not increase the overall supply of fuel in Russia; it merely slightly alters logistics. In some cases, it could help speed up fuel delivery to end consumers. However, the main issue on the St. Petersburg exchange remains the physical shortage of fuel. Trading volumes have significantly decreased, and prices are artificially capped (a step rule of 0.01% applies—the maximum possible daily price increase), making it physically impossible in many instances to purchase the required volume of fuel. With the recovery of oil processing, the fuel market could quickly return to normal, and retail prices for petrol could decrease relative to the current abnormal values, the expert believes.

The current situation poses the greatest risks for independent petrol stations, believes Tereshkin. Exchange trading will be quick to recover once restrictions are lifted. The question is how the pool of end consumers for fuel from the exchange will change: not all independent petrol stations with no direct access to fuel supplies will survive this current crisis, he concedes.

Rodionov believes that traders are also at risk. A number of companies may disappear. The market and exchange trading will recover very quickly, as soon as restrictions are removed.

However, the date remains uncertain. The restrictions on petrol purchases are now in place indefinitely for end consumers. Meanwhile, the sales norms for petrol on the exchange have been reduced until 30 September, although this measure may be extended if necessary.

Source: RG.RU