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Why has Russia banned gasoline and diesel exports?

Russia has temporarily banned its gasoline and diesel exports apart from to four ex-Soviet states to tackle fuel shortages and try to stem rising prices on its domestic market, but it could face oversupply and logistics backlogs.

The export ban implemented on Thursday for an unspecified time will affect gasoline and ultra-low sulphur diesel, but not heating oil.

DOMESTIC FUEL SHORTAGE

Russia, one of the world’s biggest oil producers, has faced shortages of fuel, especially in southern regions where it is needed for harvesting grain, although supplies in other regions are also running low.

Traders said that the fuel market has been hit by factors, including maintenance at oil refineries, infrastructure bottlenecks on railways and the weaker rouble, which incentivises fuel exports.

The Russian government blamed the shortfall on “grey exports”, or the purchase of oil products for domestic use that are exported instead. President Vladimir Putin said the government had failed to react in time to the rising price of oil on global markets.

September marked the peak of seasonal maintenance at Russian refineries and the amount of oil refining capacity offline increased by 45% from August, reducing fuel production while export prices are attractive for traders.

RISING PRICES

Wholesale fuel prices have risen in Russia since April, when seasonal maintenance began, reducing supplies available for the domestic market.

Domestic prices have hit a series of records this month after the government on Sept. 1 halved a subsidy that compensated refiners for the difference between the export price and the price on the domestic market.

The impact has led many refiners to wait for domestic prices to rise rather than sell, which has further inflated the market.

WHAT IS THE IMPACT FOR THE INTERNATIONAL MARKET?

Higher international fuel prices attracted traders, and gasoline exports from Russia jumped in January to June by 30% despite the introduction of the European Union’s embargo on Russian oil products.

Since the full EU embargo took effect on Feb. 5, Russia has diverted its gasoline supplies mostly to African countries, replacing Northwest European supplies.

Traders also have diverted diesel from Russian ports to countries including Brazil, Ghana, Libya, Togo, Tunisia, Turkey, the United Arab Emirates and even oil power Saudi Arabia.

The removal of Russian supplies as a result of the export ban could mean the resumption of diesel supplies from the United States to Brazil and from Asian and Middle East producers to Africa and other regions.

HOW LONG IS THE BAN AND WHAT IS THE PRICE IMPACT?

Russia has not specified how long the ban will last, saying further actions will depend on how well supplied the market is.

Gasoline prices on the Russian domestic market fell by almost 10% on Friday – the day after exports ban was imposed. Diesel prices were down 7.5%.
Source: Reuters (Reporting by Reuters, editing by Barbara Lewis)

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