Oil export duty in Russia rose up by $2.2. In theory, such changes will affect only the crude oil that is sent to other countries. But we perfectly understand how the industry works and who will really pay for such changes. Electricity tariffs in 2020 will grow anyway.
Since December 1, 2019, the oil export duty in the Russian Federation has become $90.5 per ton, an increase of $2.2, the Ministry of Finance reported. The duty for heavy crude oil will increase from $8.8 to $9, for light petroleum products and oils – from $26.4 to $27.1, for dark ones – from $88.3 to $90.5 per ton. In addition, the export duty for commercial gasoline will increase from $26.4 to $27.1 per ton, for straight-run gasoline (naphtha) – from $48.5 to $49.7 per ton, for coke – from $5.7 to $5.8 per ton.
The preferential rate of export duty for oil coming from Eastern Siberia, the Caspian fields, and the Prirazlomnoye field will remain zero due to the new calculation formula adopted as part of the tax maneuver in the oil industry. The duty for liquefied gas will remain zero as well.
The Ministry of Finance adjusts the indicator depending on the situation in the oil market: the higher the prices for the last month, the more the fees will be increased and vice versa, says Anton Bykov, the chief analyst of the Center for Analytics and Financial Technologies. For example, in November, the duty was increased by $1.1, while in October it fell down by $3.5, while gasoline prices continued to rise following the inflation rate.
This duty is more important for the government, which gets an opportunity to increase oil revenues in the event of a favorable market situation, and stimulate oil companies to produce the necessary products in order to avoid shortages. Starting this year, an adjustment factor is included in the export duty calculation formula as part of the tax maneuver. This factor will decrease every year until it is set to zero in 2024. After that, this duty will be canceled, and the oil companies will pay a share of the profits as a part of the mineral extraction tax (MET).
Considering the situation in the oil market, we should expect the duty reduction in December: quotes fall down against the backdrop of uncertainty about the US and China trade deal, which will largely determine the demand for raw materials, Mr. Bykov believes.
The increase in export duties does not affect the domestic price of gasoline, agrees Dmitry Alexandrov, CIO at Univer Capital. It is primarily affected by trade excise taxes, which are regularly raised by the government, the analyst explains. Since December 1, the duty rate increased by $2.2, to $90.5 per ton. This will not affect Russian oil companies much, since in the world Brent crude oil is sold at prices higher than $60 per barrel. From time to time, the price rises or falls due to external factors, but even then the cost of gasoline in Russia remains the same. It’s just that excess profits from the sale of crude oil at prices above $40 per barrel replenish the National Welfare Fund (NWF).
Moreover, in theory, an increase in the oil export duty means cheaper oil within the country, explains Alor Broker analyst Alexey Antonov. According to the “oil maneuver” plan implemented by the government, the export duties for crude oil and petroleum products should be completely abolished by 2024, but at the same time the MET should increase. This, in turn, should increase the efficiency of domestic oil refining.
But at the moment, the tax maneuver is not conducive to the raise of the domestic refining margin, and lowering export duties has an effect of domestic oil prices rising. It means that refineries spend more money purchasing oil, while compensation in the form of a “reverse excise tax” does not always provide tangible support to oil companies. Given that the oil export duty has risen, we may assume that this will provide a temporary stabilizing effect for the industry, the analyst says. As a result, the rise in gasoline prices and the rise in the energy sector tariffs will be less noticeable.
Indeed, export duties are being raised with the rise of oil prices in the global markets, Artem Deev, head of the AMarkets analytical department, said in his interview to wek.ru. This leads to an increase in the cost of crude oil and petroleum products for export – this is how the government regulates prices in the domestic market. With an increase in export duties, it becomes less profitable for producers to sell crude oil abroad, it is more profitable to sell it within the country, which satisfies the market demand and results in lower fuel prices. This is the theory. In real life, the analyst says, with rising gasoline and diesel prices in Russia, the government has repeatedly stated that they will increase export duties to force oil companies to lower prices within the Russian Federation. In the end, the authorities switched to direct regulation of export duties on a regular basis (they either lower or raise them), and within a few years we expect zero export duties for crude oil and petroleum products and increased MET.
Now, the export duty seems to have no effect on fuel prices in Russia: gasoline prices are rising regardless of the duty rate because they are regulated not by market but by administrative methods. Anyway, Mr. Antonov points out, pursuant to the updated legislation energy tariffs will in any case be raised next year. Therefore, perhaps, a decision was made to increase the export duty – in order to exclude a sharp increase in fuel prices.
According to Mr. Bykov’s estimate, the increase in gasoline prices by the end of the year should not exceed the inflation rate, which is expected by the authorities to amount to 4%. However, this is the expected level. In reality, in some regions it may well be at double-digit levels. An attempt to restrain prices through export duties will not protect the consumer anyway, especially if we take into account the fact that additional income will go to the NWF, and the inflation rate in the industry will have to be restrained “manually”.