According to Vedomosti, wholesale prices for gasoline on the St Petersburg International Mercantile Exchange rose 8-15% over the last three weeks. In the Central Region, ULR wholesale is up 14.6% and ULP has gained 8.3%.
The tax manoeuvre has set the export duty for gasoline at 78% of oil export duty in 2015, from 90% in 2014. As a result, in 1Q15 the ULR netback has jumped 30% from 4Q14, we calculate. As we have noted before, were the internal market premium for oil products (namely, gasoline) to move from zero to negative territory, it could make exports a more attractive alternative, unless domestic retail and wholesale prices for motor fuel rise. It is important to mention that gasoline in Russia is considered a socially important good. Therefore, retail gasoline prices do not move freely and reflect international price dynamics.
We have said on a number of occasions that the tax manoeuvre, introduced on 1 January 2015, might have unpredictable consequences. Lower global prices for oil and oil products, along with a significant depreciation in the rouble, mean that its effects could well differ significantly from what was initially planned. According to our calculations, the likely result is that profitability at many of Russia’s oil refineries will decline below the breakeven point at the operating level. We calculate that the refining margin of the average Russian refinery is now less than USD 1/bbl.
We do not yet see how the market is to operate in an environment where there is a persistent domestic oil product discount. Nevertheless, the oil sector remains relatively profitable. Therefore, we cannot rule out further interventions in the sector’s regulatory environment. As a result, we remain cautious on the sector.