Russia's gasoline export ban extension to have a mixed impact on refineries

Russia had originally imposed the temporary ban -- aimed at bringing stability to the domestic market -- on March 1, 2024, for six months until the end of August, but lifted it temporarily in late May. Although export volumes are fairly marginal, typically ranging between 300,000-500,000 mt/month, the government reinstated the ban starting Aug. 1 and also extended it to the end of October. 

 

Coupled with a gradual end of maintenance works at Russian refineries, the ban should create a surplus on the domestic gasoline market and return the spot price for 95 RON gasoline to a more justified range of Rb50,000-60,000/mt ($578-$693/mt), according to Sergey Kaufman, an analyst with Moscow-based think tank Finam, said in an email Aug. 6.

 

Amid planned and unplanned outages at refineries, domestic spot prices have been climbing most of the year, but since early June -- after the lifting of the export ban -- they have surged by some 44% to close to an all-time peak at around Rb74,460/mt. 

 

The price rally was driven by various factors weighing on supply simultaneously, according to Alexander Kotov, head of consulting with Neft Research, including the unplanned outage of one of the two catalytic crackers at Lukoil's Nizhny Novgorod refinery in January due to equipment failure, drone attacks on several refineries in the central part of Russia, the impact of a severe flood that led to the temporary shutdown of the Orsk refinery, and technical issues at the Omsk and Volgograd refineries. 

 

Supply chain bottlenecks have also played a role, Kotov said, noting that a shortage of railcars has held up oil product loadings at refineries. 

 

The gasoline ban extension will help increase availability, which will certainly have an impact on commodity exchange prices, Igor Yushkov, a senior analyst with the National Energy Security Fund and a specialist at the Russian government's Financial University, said in a phone interview on Aug. 9. 

 

The effect will be similar to those achieved in September 2023 and March 2024, when restrictions on exports brought spot prices down, Yushkov said. 

 

However, some analysts do not think that the ban extension is likely to have a significant impact on spot prices. Tamara Kandelaki, Chairman of the Committee on Economics at the Oil Refiners and Petrochemical Association, said in an Aug. 8 email that it will only have limited "psychological effect". 

 

In her opinion, the Russian oil refining industry has sufficient flexibility to switch to making alternative products, such as naphtha. 

 

Kandelaki also noted that the authorities no longer publish data on gasoline output, which would make discussions purely “hypothetical." 

 

End of super-margins 

 

Most analysts do agree that the export ban will drag refinery margins down. 

 

Finam's Kaufman said it would be more accurate to describe the impact of the anticipated fall as a "normalization" as current levels are abnormally high. 

 

In addition to extremely high gasoline prices, Russian refineries have also enjoyed an 82% hike in payments under the so-called damping mechanism in the first half of 2024, Kaufman said. 

 

Russian refineries receive compensation under the damping mechanism when export prices exceed domestic prices.

 

Kotov added that the ban would primarily hurt the economics of oil refineries focused on exports due to their geographical location and product basket structure, such as the Kirishi and Orsk refineries. 

 

According to Yushkov, however, while profits will decline modestly due to lower exports, they will be offset by higher compensation under the damping mechanism. 

 

While analysts may vary on their view of impact on margins they are confident that the Russian government will continue to closely monitor fuel prices due to their impact on inflation. 

 

"The rise in fuel prices means a rise in prices for consumer goods. That means inflation. That means the Central Bank will continue to raise the [key interest] rate," Kotov said.

 

Vladislav Vorotnikov

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