Oil prices for Russian crude at shipping ports have stabilized around $70 per barrel, closely aligning with the average price expected for 2024. While production volumes may have decreased, the decline has been minimal. Currently, the only factor negatively influencing payouts is a stronger ruble compared to two years ago.
Given this context, in March (to be paid in April), oil companies could remit over 730 billion rubles to the budget under the main industry tax on mineral extraction (MET). This amount will be supplemented by payments for the mineral extraction tax (MET) calculated for the first quarter of this year, which will be made in April. In January and February, oil prices were low—$40.95 and $44.59 per barrel—so the total MET payments are unlikely to exceed 300 billion rubles. Revenue from the gas sector is expected to remain stable at around 170 billion rubles.
As a result, revenue from the oil and gas sector in April could exceed 1.2 trillion rubles. However, the budget provides subsidies to oil companies, including reverse excise taxes, investment tax deductions, and others. Their amount is also set to increase. Based on the projections for 2024, with the current ruble exchange rate, it could approach 130 billion rubles.
There is also a damping mechanism—a compensation from the budget to oil producers for supplying fuel to the domestic market at prices lower than export prices. The scale of these damping payments is directly proportional to the difference between the export alternative (prices in Europe) and the indicative price (set by the government annually) for the domestic market.
The damping could also be negative. If the export price of fuel falls below the indicative prices, oil producers are then required to pay the budget the resulting difference. This occurred in January, where, following that, oil producers paid 18.8 billion rubles in February due to the damping. In response, Deputy Prime Minister Alexander Novak instructed the Ministry of Finance and the Ministry of Energy to analyze proposals to adjust the mechanism to adapt it to new market conditions and support oil refining margins. Subsequently, as a result of events in the Middle East, global oil prices began to rise again, making the damping positive for oil producers.
By the end of March, budget revenues from the oil and gas sector may rise to a very favorable level for the industry in 2024
Again, considering the projections for 2024 and the exchange rate, the damping payments for March could be around 150 billion rubles. Reuters estimates that potential payments could amount to 130 billion rubles. Consequently, the oil and gas revenue for the budget in April (payments for March) may total around 900 billion rubles. In January this year, they amounted to 393.3 billion rubles, and in February, 432.3 billion rubles.
This raises two questions. The first is whether there is a risk that the government will alter the damping payment rules in response to the anticipated budget deficit—not in favor of oil producers, but rather by cutting their payments? It is clear that the crisis in the Middle East is unlikely to last long, as too many countries and forces are interested in its swift resolution. After that, oil prices may drop, possibly back to early-year levels (around $60 per barrel). Even with a reduced discount on our oil, as currently reported only by Western news agencies, it could sell for $40-$50 per barrel, or even lower. Consequently, this would lead to reduced budget revenues from oil at a time when there is an opportunity to generate additional billions in the treasury.
However, as noted in a conversation with "RG" by Dmitry Gusev, Deputy Chairman of the Board of the "Reliable Partner" Association and a member of the expert council of the "Gas Stations of Russia" competition, the damping is essentially the only measure to stimulate oil refining in Russia. Oil refineries need support; we do not want to end up without fuel. Furthermore, everyone remembers how the last attempt to halve the damping led to the fuel crisis in autumn 2023.
Similar views were expressed by Sergey Tereshkin, CEO of Open Oil Market. An increase in damping payments will not pose a serious problem for the budget, as, under current conditions, not only subsidies for oil refineries (ORCs) will rise, but also MET revenues from oil. It is likely that the calculation rules for subsidies will not change in the coming months.
According to Sergei Frolov, Managing Partner of NEFT Research, making urgent amendments to the Tax Code is currently impractical, as it is uncertain how long the Middle Eastern crisis will last.
The second question concerns fuel prices in the domestic market. Since the beginning of March, exchange prices for gasoline and diesel fuel (DF) have been increasing, currently at record levels for this year and gradually approaching the record highs seen last autumn. The retail domestic fuel market is under close scrutiny from regulators, who strive to prevent prices at gas stations from rising above inflation. However, regardless of how strict the control may be, gas stations primarily buy fuel through exchanges or from oil depots, which base their pricing on exchange trading rather than entirely on domestic parameters, leading to reliance on the export alternative (fuel prices for overseas deliveries).
If gas station prices begin to rise significantly, the government could swiftly reinstate a complete export ban on fuelCurrently, Rosstat is recording a modest increase in gas station prices, which slightly lags behind average consumer inflation. However, this situation could change rapidly. The Moscow Fuel Association has already confirmed a sharp rise in gas prices at capital gas stations for the previous week—an average increase of 21 kopecks for AI-92 and AI-95 grades.
Yet, experts on this issue are calm. Frolov explains that there are two reasons behind the rise in exchange fuel quotations. The first is a seasonal factor. Fuel consumption is increasing both in the private sector and in the transportation sector, along with significant consumption growth in agriculture due to the start of fieldwork. The second reason is situational. The sharp increase in oil and petroleum product prices, linked to the attacks by the USA and Israel on Iran, inevitably affects Russia, a major global producer and exporter of petroleum products. However, the damping mechanism is expected to mitigate these consequences. Additionally, the government always has the option to introduce a complete export ban on fuel, which would halt price increases. Therefore, it is primarily in the regulator's hands to act timely with necessary decisions, as has been delayed in previous years.
However, Tereshkin believes that new export restrictions are unlikely. The rise in subsidies and increased revenues from petroleum product exports will enhance the profitability of oil refining. This, in turn, should reduce price pressure in the domestic market. Thus, to gain additional revenues, oil producers won’t have to "inflate" wholesale prices, ensuring a relatively stable retail market situation. Overall, it may sound counterintuitive, but the rising prices in the global oil and petroleum products market could lead to temporary stabilization of the fuel market in Russia, the expert comments.
Source: RG.RU
