Russia's domestic tourism boosts gasoline demand, prices

Russia's booming domestic car tourism amid coronavirus restrictions is driving gasoline demand and prices even higher during already traditional summer peak season, the St. Petersburg International Commodity Exchange (SPIMEX) said July 13.

"Everybody has remained in the country, everybody is driving cars, consumption rose, the economy picked up and that is having a substantial impact on the consumption of gasoline and diesel," CEO Aleksei Rybnikov said at a press conference, adding that the "increased demand is leading to increased prices."

As gasoline prices on the exchange floor continue to break historical records, Russian authorities have prepared a draft document on increasing the minimum sales of gasoline and diesel on the exchange to 12% and 8.5% from 11% and 7.5%, respectively.

At the same time, at his meeting with President Vladimir Putin on July 12, business ombudsman Boris Titov asked for minimum sales of gasoline to be raised to 15% to save independent gas stations from running out of business.

Spimex agreed that "the speed of making decisions can be increased" and won't make the current situation "worse."

"Obviously, we are observing a delay, the initiatives that are under discussion have not been implemented yet. We're still at 11% for gasoline," Rybnikov said.

In 2020, the minimum gasoline volumes that oil companies are required to sell on the exchange floor were raised to 11% of output and diesel volumes to 7.5%. Jet fuel volumes were raised to 11% of output, fuel oil up to 3% and LPG to 7.5%.

Rybnikov also dismissed talk of export bans as a way to halt price rises on the domestic market, noting that the long-term impact of such measures would make production less attractive.

At the end of April, Russia's energy ministry published a draft outlining a potential ban on gasoline exports for three months aimed at easing pressure on domestic prices. However, Deputy Prime Minister Alexander Novak said May 12 that there was sufficient availability and ruled out the need for any imminent enforcement of an export ban. He also noted that only 10% of gasoline production is exported compared with 50% of diesel output, and that any potential export ban had only been discussed with regard to gasoline.

Currently, an increase of the minimum obligatory volumes of gasoline and diesel on the exchange is still under discussion. Furthermore, there is a project to increase gasoline and diesel sales by an additional 1% in the third quarter.

Recently introduced changes to the damping mechanism, which compensates Russian oil companies when domestic prices are below export netbacks, "undoubtedly helped" to contain prices, but were not the only factor sustaining them, Rybnikov said.

The reopening of the flight connection to Turkey, which contributes 25% to Russia's overall international traffic, "didn't help much", he said, due to the boom in domestic car tourism, which further increases consumption of gasoline during the summer season.

In its latest report, the International Energy Agency forecast oil demand in Russia to slow in June and July due to restrained mobility caused by a new severe wave of the coronavirus.

Spimex is also looking at several measures to address the sale of kerosene for blending into winter diesel. The kerosene fraction can be blended into summer diesel in order to increase the cold properties. Its use as a blendstock for substitute products is preferred as it is excise free, and currently the tax authorities are looking into that, Spimex said. Furthermore, Spimex is looking to increase the number of airline hubs where kerosene is sold for use by airlines and also to improve the way it monitors the final destination of kerosene that is purchased on the exchange floor.