22 June 2004 05:39
Soaring Gasoline Prices a Byproduct of Boom
No pain, no gain: The record surge in world oil prices may be fueling Russia's unprecedented sixth straight year
of economic expansion, but it is also taking an increasingly heavy toll on its motorists.
This month alone, the cost of gasoline has risen by more than 5 percent in Moscow, and now sells for the equivalent
of nearly $2 per gallon, which is low by European standards but on par with prices in America, where average incomes are
roughly 10 times higher.
According to the Moscow Fuel Association, which unites wholesalers and retailers, the average price of the most
popular type of gasoline, A-92, has risen by a sixth to an all-time high of 13.22 rubles per liter since the start of
the year -- and there is no relief in sight.
Market watchers say they expect prices to continue to climb at least until August, when tough new export duties are
introduced. But even then, prices are not expected to fall.
A big part of the problem is high global crude prices. Producers have been scrambling to export as much as possible,
causing domestic prices to shoot past the $20 per barrel mark, nearly three times higher than at the beginning of
2003.
But there are also structural factors pushing gasoline prices higher, such as a lack of competition on the market and
a refining ratio that favors more-lucrative export products like fuel oil and crude over gasoline for domestic
consumption.
"The root of the problem lies is in the fact that there is no truly free market to set prices," said
Grigory Sergiyenko, executive director of the Russian Fuel Union, which unites regional groups like the Moscow Fuel
Association.
The situation has become so critical that the Russian Fuel Union took the unprecedented step last week of calling on
the government to take steps to calm the market.
Sergiyenko said the public call to action was an attempt by producers and retailers to explain how difficult it is to
reduce prices. "What we want to do is to make sure that consumers understand that it is not just nasty owners of
petrol stations that overcharge them at any given opportunity," he said.
Russia's refining industry is dominated by vertically integrated oil companies, many of whom use
transfer-pricing schemes in which production units sell to retail units at non-market prices, Sergiyenko said. These oil
companies account for 85 percent of all gasoline production, but they set their prices based on those of the eight
independent refiners in the country who have a much more accurate picture of the true costs of production, he said.
"They look at the prices manifested by the independents and follow suit," he said.
Another factor contributing to the price rise has been an unexpected, though temporary, reduction in supplies.
Every year, prices begin to rise during peak driving and farming season, which begins and May, and runs through to
September.
But this year, prices in Moscow started to rise in April, when all three major refineries that supply the capital --
Moscow, Yaroslavl and Ryazan -- underwent a series of repairs and upgrades at the same time.
This led to a cut in output, according to analytical center Kortes, which tracks the domestic petroleum products
market.
.TX-..**********************************************
[The Moscow Times] |
RUSSIA IN FACTS
