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Wednesday, March 14, 2018

Gasoline in Russia will rise in price even with falling oil prices

Unlike the U.S. and Europe, where gasoline and other fuel prices dropped significantly after oil, in Russia the situation is reversed – the diesel will only go up. But if the government fails to avoid the threat of fuel shortage, to rise significantly. But why such a paradoxical situation?

The sharp drop in world oil prices has not led to a reduction in the cost of fuel in Russia, as in the price structure of domestic fuel accounts for the bulk of the taxes that are constantly rising. Another increase in gasoline prices is expected in April along with the new increase in excise duties, which should bring a budget of almost 90 billion rubles of additional income. However, the members of the Federal government has repeatedly stressed that the rising price of fuel will remain within inflation, and in dollar terms the cost of gasoline in Russia during the ruble devaluation actually decreased read twice. But in order to prevent any shortage in the fuel market and to keep price growth within acceptable limits, the authorities will have to make a very serious effort.

Gasoline tax under pressure

“A significant portion of new equipment for Russian refineries need to import that in the conditions of falling of the ruble will inevitably mean a rise in the cost of projects”

Regular growth in the cost of fuel on the background of the fall in world oil prices in recent weeks has become one of the key topics of public debate on economic policy of Russia. The paradox is enhanced by the fact that in Europe and USA fuel prices immediately responded to the dynamics of the oil and at the end of last year returned to the level of early 2009, when oil, as now, cost about 35 dollars per barrel.

According to the energy information Administration (Wei) USA, the average price of diesel fuel “on the highway” in America as of February 8 amounted to 2,008 USD per gallon, or 53 cents a liter, whereas a year ago a gallon of diesel cost an average of 2,835 USD or 75 cents per liter. Thus, for the year of the diesel fuel in the U.S. fell by 41.5 per cent, which largely coincides with the dynamics of cost of oil. If at the beginning of last February, the Brent barrel cost of $ 54, a year later its price dropped to $ 34, or 58.8 per cent.

For comparison, in Russia, according to Rosstat, last year the average price of diesel fuel increased by 3%, petrol A-76 – by 6.9%, AI-92 – by 4.9%, AI-95 and above – 4.8%. The national average cost of a liter of gasoline was in 2015 34,9 rubles. Virtually all analysts of the fuel market agree in opinion that the culprit is a specific structure of the cost of domestic fuel in which the proportion of the oil itself is extremely small (10%) and the majority is of different taxes, both direct paid by producers, and indirect (excise tax).

The average price of gasoline in the major oil-producing countries (click to enlarge)This fact does not deny and in the Russian government: in December 2014, energy Minister Alexander Novak said that the real cost of a liter of gasoline is 3.5 rubles. A few days ago, the FAS in response to the request of deputies of the state Duma Valery Rashkina and Sergei Obukhov, concerned about rising gasoline prices when the drop in world oil prices, reported that the tax component in the final cost of a liter of fuel is approximately 65%.

Over the past year, the tax burden on fuel in Russia has increased significantly. First, more than 55% was raised the rate of tax on mineral extraction (met), and at the beginning of this year, increased excise taxes: 20% diesel, 36% gasoline class “Euro-5” and 44% on fuel of a lower class. Starting from 1 April expected new increase of excise duties: petrol – 2 roubles for litre, diesel fuel – by 1 ruble. The relevant initiative came from the Ministry of Finance of Russia, which calculates that the increase in excise duties will give a receipt in the budget to 89.3 billion roubles of additional revenues.

For comparison, in America the share of raw materials in the final cost of fuel significantly greater than the proportion of taxes, in connection with which fuel prices are highly sensitive to movement in oil prices. According Wei USA, in December last year, the structure of the price of diesel fuel in the country was as follows: 37% of pictures were actually oil, 11% was recycled and 30% on distribution and marketing, and only 22% in various taxes.

The paradoxes of devaluation


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One Response “Gasoline in Russia will rise in price even with falling oil prices”

  1. Bill
    27.02.2016 at 10:37

    I could not refrain from commenting. Well written!

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