Russia outlines controls on diesel exports after ban lifted, price pressures ease

An export ban on Russian oil products -- now partially lifted -- has succeeded in lowering prices and ensuring supply, including to the agricultural sector, with export levels to be carefully controlled until the market is being fully supplied, Russian officials said Oct. 9.

Russia moved to limit gasoline and diesel exports in September as growing diesel shortages threatened crucial seed-planting in the agricultural sector, along with disruption in the retail sector.

However, gasoline and diesel spot prices on the St. Petersburg exchange have now fallen by 16% and 21% respectively, whereas prices at tankfarms have come off on average by Rb6,300/mt ($62.1/mt) across the whole country, or by around 8%, Deputy Prime Minister Alexander Novak told a government meeting, according to an official transcript.

"The measures taken demonstrated their effectiveness. The restrictions helped saturate the domestic fuel market, which in turn has had a positive impact on prices," Novak said.

Separately, Deputy Energy Minister Pavel Sorokin told RBK TV price rises at retail stations had eased but needed to fall further, and the export restriction would be fully lifted only when the domestic market was fully supplied.

The Oct. 6 easing of the export ban enables the restart of diesel exports by pipeline, but maintains a ban on gasoline exports, and diesel exports by rail, as well as tariffs aimed at deterring "grey market" traders from exporting products intended for domestic production.

The export ban had raised fears of refiners cutting runs, amid a build-up of summer-grade fuel that could not be sold domestically.

Sorokin said the fuel shortages had stemmed from the devaluation of the ruble, the reduction in the discount applicable to Urals crude relative to the global crude market -- which impacts taxation -- and strong global diesel prices.

News agency Tass reported diesel exports had resumed from Russian ports on Oct. 7 in line with the easing of restrictions.

Permit system

Exporters will be obliged to supply at least 50% of their production to the domestic market as a condition of receiving export permits, Sorokin said.

"We will monitor what percentage of diesel production goes to the domestic market... The pipeline quota -- in other words the level that companies can release for export -- cannot exceed the monthly average of pipeline diesel exports for the past eight months. This is a very important restriction that serves to supply the domestic market," Sorokin said.

He added that there was no threat to Russia's position in the export market as a result of the ban, given its temporary nature.

Novak in his comments said the lifting of the ban on pipeline diesel exports was aimed at helping reduce stocks and subsequently maintaining throughput at the biggest refineries, which produce Euro 5 diesel.

Market sources indicated last week that if the ban wasn't lifted, storage would fill up and force refineries to cut runs.

Novak said that the prohibitively high Rb50,000/mt export duty aimed at stopping grey market exports will apply to all oil products -- not just gasoline and diesel -- and will apply to those exporters not involved in the production process. Refineries with more than 1 million mt/year (20,000 b/d) of capacity will be exempt.

According to Sorokin, the share of grey exports is "not very big" but sufficient to tip the balance on the market. The difference between domestic and export prices had reached Rb25,000-27,000/mt, encouraging exports of products earmarked for domestic consumption.

Novak also said the authorities were monitoring diesel prices for agriculture and the Federal Antimonopoly Service had started several probes into profiteering by independent retailers.

The government will also submit amendments to the Tax Code aimed at restoring compensation available under the damping mechanism retrospectively from Oct. 1. The halving from Sept. 1 of the subsidies refineries receive under the mechanism was seen as one of the main drivers of the summer price spikes.