Price regulation disrupts Russian fuel markets

While the official policy of the Russian government is to refrain from price-setting, this measure was carried out in the beginning of November through agreements between the Federal Antimonopoly Service (FAS) and Russia’s big oil companies. As a result, wholesale prices for fuel were lowered. To prevent shortages, the oil companies were at the same time obliged to provide adequate supplies for the domestic market.

The government justify these measures by claiming that fuel prices have risen unreasonably high. Rising global oil prices and ruble depreciation have led the ruble-price for crude oil to nearly double between summer 2017 and last summer. It has, though, fallen again in recent weeks.

Oil companies quickly found ways to circumvent the narrowly targeted price agreement. As the regulation applies to nominal prices, oil refiners have eliminated other advantageous terms in their supply contracts such as discount schemes. Moreover, as the deal only applies to wholesale prices, fuel producers are channelling more of their production to their own filling stations.

Independent fuel retailers that buy from the big oil companies now find themselves in difficulties. The amount of fuel available on the St. Petersburg commodities exchange has shrunk, and delivery delays have been reported. The situation in Siberia and Crimea seems to be most problematic, since the share of independent fuel retailers is large in these regions.

Discussion of the problem is made more difficult by Russia’s already inflamed debate on market competition. The big oil companies accuse independent retailers of abusing their local dominant market positions. Independent retailers accuse the big oil companies of using their market positions to compete unfairly. According to some retailers, the price agreements reached with the FAS grant an advantage to the big companies.