Sergei Kaufman, an analyst at the Finam investing group, told S&P Global Platts:
- The past year was exceptional in the context of demand for oil products in the summer season
At the same time, lengthy refinery turnarounds, which saw works at a number of refineries overlap and continue longer than planned meant supply struggled to keep up with the rise in demand.
As a result, gasoline prices at the pump surged faster than inflation, increasing by 9.3% since the beginning of 2021, according to Rosstat data.
Similarly, diesel prices have been on the rise since September, when the switch to grades with more stringent cold properties started, with the energy ministry instructing refineries to increase output to avoid shortages during the peak winter period.
Kaufman said:
- The factor of growing domestic tourism reached its peak in 2021, when international travel during the holiday season was extremely limited
- Partially because of this, the demand for oil products in the past year has already exceeded the pre-pandemic level
- In 2022, wider approval of Russian vaccines overseas and increasing international travel will only slightly reduce domestic demand for oil products
Meanwhile, the IEA forecasts an increase in Russian oil demand of 120,000 b/d year-on-year in 2022 and expects it to exceed pre-pandemic levels by 190,000 b/d.
The IEA also noted that «based on the strength of domestic aviation» Russia's Q4 jet/kerosene demand is marginally higher than 2019.
State measures
To help regulate domestic markets, the Russian government is preparing further amendments to the so-called damping mechanism, as more price surges are expected in the new year, when both the excise duty and the indicative price used for calculating the damping mechanism are set to rise.
The draft document should be ready for review by the end of this year, energy minister Nikolay Shulginov said Dec. 14, and could enter into force in January.
In addition, Russia is looking at a gradual increase in the obligatory minimum volumes oil producers are required to sell on the St Petersburg International Mercantile Exchange floor.
Kaufman said:
- The issue of minimum sale volumes on the exchange should be solved dynamically
- If there is a surge in demand, it should be increased, because this is one of the effective methods of curbing spot prices for gasoline and diesel
Spikes in demand, such as were seen over the summer of 2021, should be able to be met when more refineries have completed upgrades, Anton Rubtsov, director of the Oil Refining and Gas Complex Department at the energy ministry, said at a recent oil forum.
In 2021, the energy ministry agreed on investments for upgrades at 14 Russian refineries, aimed at increasing output of gasoline and diesel.
The measures to encourage upgrades are also aimed at smaller refineries.
Kaufman noted:
- The government already signed a number of agreements providing incentives in exchange for modernization. I don't think it makes sense to further speed up this process
The deputy head of Russia's Federal Antimonopoly Service Vitaly Korolev said Dec. 10.:
- All these measures being taken... allows us to hope that we will be able to keep the situation within the predicted inflation in 2022
- The past year was quite volatile and in places nervous
- I don't think that 2022 will be the same
