Oilmen Catch Up with the US
// Moscow Petrol Prices Match the US
Price Formation
This week in Russia, the retail price for petrol has, for the first time, reached the same level as in the US. Moscow retail companies say that the major oil companies are to blame, because they are raising wholesale prices. Oilmen explain the growth of prices as the result of heightened demand and railroad transit and electric power rates going up. Petroleum-product market analysts are predicting an even further rise in petrol prices, including the possibility that sooner or later its price will reach the European level.
According to the Moscow Fuel Association (MTA), the average price of AI-95 petrol is 14.83 rubles per liter in Moscow, as of August 16. However, the same grade of petrol at gas stations franchised from large oil companies (including their jobbers) has reached 15.10 rubles. On the same day, the Energy Information Administration of the US Deaprtment of Energy fixed the average retail price of Midgrade petrol (equivalent to AI-95 in Russia) at $1.97 per gallon, which, converted into the Russian measuring system, equals 15.20 rubles per liter. At the same time, in some US regions, the average price for this brand is lower than in Moscow. For instance, Midgrade petrol on the northern coast of the Gulf of Mexico costs $1.877 per gallon, which is 14.48 rubles per liter. This is the first time prices for petrol have reached the US level. Petrol prices in the US have been consistently going down in the last two months, while in Russia they have been rising.
A number of oil refineries and commercial ports are located on the Gulf of Mexico coast. However, analysts consider it abnormal when petrol prices are lower in a country with an expensive workforce and strict tax legislation, as compared to Russia, which is one of the largest oil producers. According to the Energy Ministry, the price of oil accounts for 44% of the retail prices on petrol in the US and 27% of it is taxes. In Russia, according to MTA director Grigory Sergienko, excises and taxes make up 60% of the final retail prices on fuel. The prime cost of production of one barrel of oil in Russia is only $2-6, which at maximum is 1.30 rubles per ton. However, the priceof oil supplied to refineries on the internal market in Russia is 5,600 rubles per ton, while Americans pay 9,800 for the same volume. Although Russian and American refineries use different kinds of oil (Urals and WTI) the amount of petrol produced is practically the same.
Russian petrol vendors blame the large oil companies for raising the wholesale prices for oil. The director of one Moscow gas-station chain said, “Since the beginning of the year, wholesale prices have gown by about 40%, while in the United States they grew only by 8-12%.” He said that “oilmen are trying to get the most out of it on the internal market, in order to make it comparable to export prices.” At the same time, he says that the rise of export duties on oil and petroleum products is not accomplishing the intended goal (reduction of exports), so the oilmen raise the prices even higher to compensate for the expenses on duties.
Experts from Kortes Oil Market Research Center agree with that explanation of the rise in prices. “The Russian government has no other way to regulate petrol prices, except for introducing duties on export,” says one of the experts. According to him, “the market is at the peak of its paying capacity. At the beginning of 2003, the oilmen's dream was $0.30 per liter of petrol; now they have reached $0.50, although in case of further growth, people will stop using their cars.”
Large companies do not consider themselves guilty of the rise in petrol prices. Admitting that the rise of oil prices in the world had its share of influence on the situation, they think there were other reasons for it as well. LUKOIL experts told Kommersant that “the prices for the product of the main branches of industry, including natural monopolies, have been growing since the end of 2002.” Kommersant's informant also mentioned, “gas and railroad freight transport rates have grown by 44%, electricity has gone up by 80%, heat power by 40-60%, and since December 2003 prices for the products of pipeline industry have grown by 33%.” The latest rise of prices the oil companies explain as a seasonal rise in demand.
Retail petrol vendors say that, based on wholesale prices, AI-95 petrol should have cost 16 rubles a liter by now, however, they promised not to raise retail prices at least till September, being afraid of a fall in demand (so far, the rise of petrol prices has not affected sales volume). The experts predict fuel prices will begin to rise in fall, and if they keep growing at the same rate, they may reach European level of ˆ1 per liter in the summer of 2005.
Denis Skorobogatko, Aleksey Ivanov
All the Article in Russian as of Aug. 18, 2004
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Photo: Sergey Tyunin
