The oil-producing country Russia suddenly suffers from a fuel shortage – because of this, the prices of diesel and gasoline rise sharply

The oil producing country Russia suddenly suffers from a fuel shortage

JASNOGORSK, TULA REGION The gas station screen does not show the price of diesel in the central Russian city of Yasnogorsk.

The seller says that there has been no diesel for three weeks. There is no word on when it will be available.

Gasoline prices are also higher at the station than in the capital, Moscow, which is about two and a half hours away by car.

95-octane gasoline costs 61.55 rubles or 0.60 euros per liter at this station. In Moscow, it was available at the price of 54.95 rubles or 0.53 euros per liter.

Compared to Finland, gasoline is of course very cheap, but at local income levels the price increase already makes a dent in the wallet.

At another gas station in Jasnogorsk, fuel is already on the card.

The driver of the small school bus says that fuel is sold at the station only for public sector cars. The station seems almost closed.

Fuel shortages have been reported from several different regions of Russia.

Prices have risen the most in Russia at private gas stations that are not part of the chains of large oil companies. The situation may lead to the bankruptcy of small stations.

Minister of Agriculture Dmitry Patrushev said two weeks ago that the situation is approaching disaster for agriculture. Since then, the wholesale price of diesel has already risen by 14 percent.

The situation is so strange that Russia is a major oil producing country. So what does it pay for?

It’s partly about the season, partly about the war

The price increase and direct shortage of fuel are simply affected by the timing. The demand for diesel traditionally rises during the harvest season and at the time of autumn sowing, because tractors and other agricultural machines need diesel.

In addition, the normal maintenance shutdowns of the refineries usually take place at the end of the summer.

Farmers’ representative organizations warned of a fuel shortage already at the end of August. The transport sector has also complained about the sharp increase in the price of diesel.

The rising cost of fuels will soon be reflected in food prices, for example, when both agricultural work and road transport become more expensive.

The exceptional situation is partly connected to Russia’s war of aggression in Ukraine.

Inevitably, a lot of fuel goes into running the war machine. War-related cargoes are the priority in rail transport, which has made it difficult and expensive to transport gasoline and diesel by rail.

On the other hand, due to the sanctions, Russian companies have had to quickly change their logistics chains. More and more transport is done on roads, which increases the demand for diesel.

When it comes to spare parts deliveries, the arms industry is now a priority. Therefore, the maintenance shutdowns of the refineries can be prolonged.

Exports attract, the domestic market is not attractive

However, the key factor is export.

Exporting fuel is now much more attractive to oil companies than selling it to the domestic market, because the world market prices of oil are high and the Russian ruble has weakened.

A weak ruble favors exports when companies’ costs are in rubles and export income is in dollars.

One factor is gray exports: companies buy cheap government-subsidized fuel on the domestic market and sell it abroad, where they get a better price.

The attraction of exports is also increased by the fact that the compensation paid by the Russian state to oil companies for sales to the country’s own market was halved at the beginning of September.

The compensations for the oil companies have been felt in the budget

The Russian authorities have wanted to keep the consumer prices of fuels stable. That is why the state has paid oil companies compensation for selling to the home country.

The price of gasoline and diesel is one such thing that the consumer quickly notices at the gas station pump. Even in an authoritarian country, those in power want to keep the citizens happy.

So in Russia, the government created a system to stabilize prices in 2019.

Oil refiners were compensated for selling to the domestic market if the price obtained for gasoline or diesel abroad was higher than the average price determined for Russia’s own market.

The government paid the companies an average of two-thirds of the difference between the foreign and domestic prices.

If, on the other hand, the price on the domestic market were to become more expensive than the export price, the oil companies would have to pay compensation to the state budget.

The arrangement was intended to ensure that there would be enough fuel for Russia’s own consumers as well.

Paying reparations has not been cheap for the Russian state. Last year, it paid 2.2 thousand billion rubles in compensation to oil companies.

At the current exchange rate of the euro, this would be approximately 21.4 billion euros.

This was almost a fifth of the peak income brought to the state coffers by oil exports, which was 11.6 thousand billion rubles, or 113 billion euros at the current exchange rate of the euro.

The budget deficit forced to cut compensations

The war of aggression in Ukraine has increased the budget deficit, and the Russian government wanted to save money: that’s why the compensation was halved from the beginning of September.

Now those in power have to think about returning the compensation to its former level. The Russian government could also simply limit the export of diesel, but in the current circumstances, foreign policy is weighing on the other side of the scale.

As the confrontation with the West intensifies, Russia wants to maintain good relations with the countries to which it currently exports diesel. They are Turkey, Brazil, Saudi Arabia and North African countries.

Russia’s management can partly count on the fact that the price of fuels will fall in October, when price-increasing factors such as the harvest season are behind us.