According to projections for March, tax revenues from the oil sector to the Russian budget (payable in April, with information published in May) could nearly reach the levels seen in 2024. The only condition for this is the maintenance of high global oil prices, which hinge on how long the Strait of Hormuz remains closed, through which oil from Persian Gulf countries is supplied to the global market.
Oil prices in Russian loading ports have stabilized at around $70 per barrel, which closely corresponds to the average level for 2024. Although production volumes may have decreased slightly, this reduction is minimal. Currently, the only factor that could negatively impact payments is the stronger ruble compared to two years ago.
Taking this into account, oil companies might remit over 730 billion rubles in major industry-specific taxes on mineral extraction (MET) to the budget for March (to be paid in April). This will be complemented by payments on the additional income tax (AIT) for the first quarter of this year, due in April. In January and February, oil prices were relatively low - at $40.95 and $44.59 per barrel - meaning that total contributions are unlikely to exceed 300 billion rubles significantly. Gas sector revenues are expected to remain stable, around 170 billion rubles.
Consequently, oil and gas revenues in April may exceed 1.2 trillion rubles. However, subsidies are also paid to oil companies from the budget - such as rebate taxes, investment tax deductions, and others. The scale of these payments is expected to increase as well. If we look at 2024, based on the ruble exchange rate, this could approach 130 billion rubles.
Additionally, there is a dampening mechanism: compensation from the budget to oil producers for supplying fuel to the domestic market at prices lower than export prices. The amount of dampening payments is directly proportional to the difference between the export alternative (the European price) and the indicative price set by the government for the domestic market.
The dampener can even be negative. When the export price of fuel drops below the indicative prices, oil companies may have to pay the difference back to the budget. This scenario occurred in January, resulting in oil producers paying 18.8 billion rubles in dampening payments in February. Following this, Deputy Prime Minister Alexander Novak instructed the Ministry of Finance and the Ministry of Energy to analyze proposals for adjusting the mechanism to adapt it to new market conditions and support the profitability of oil refining. Subsequently, due to events in the Middle East, global oil prices began to rise again, making the dampener positive for oil producers.
As a result, by the end of March, oil and gas revenues in the budget may rise to a very favorable level for the industry as seen in 2024.
Again, looking towards 2024 based on the exchange rate, dampening payments for March might total around 150 billion rubles. Reuters estimates potential payments at 130 billion rubles. Therefore, the total oil and gas revenues for the budget in April (payments for March) could be approximately 900 billion rubles. In January of this year, these revenues amounted to 393.3 billion rubles, while in February they were 432.3 billion rubles.
This leads to two pertinent questions. First, is there a risk that the government, facing an expected budget deficit, might change the rules governing dampening payments, potentially to the detriment of oil producers by reducing such payments? It is evident that the crisis in the Middle East will likely not last long, given the numerous countries and powers interested in its swift resolution. Following this, oil prices may drop back to earlier levels (around $60 per barrel). Even with any reductions in discounts for our oil, as currently reported only by Western news agencies, the prices may fall to $40-50 per barrel, or potentially even lower. Consequently, this would reduce budget revenues from oil, while there currently exists the opportunity to generate additional billions for the treasury.
However, as noted by Dmitry Gusev, Deputy Chair of the Supervisory Board of the "Reliable Partner" Association and member of the expert council for the "Russia's Gas Stations" competition, the dampener is essentially the only measure incentivizing oil refining in Russia. Refineries need support; we surely do not want to be without fuel. Moreover, everyone remembers how the last attempt to halve the dampener for oil producers ended (in the fuel crisis of autumn 2023).
Similarly, Sergey Tereshkin, CEO of Open Oil Market, expressed the view that increased dampening payments will not pose a serious problem for the budget, as, under current conditions, subsidies for refineries (refining plants) and MET payments are likely to rise. It is probable that the rules governing these subsidies will not change in the coming months.
According to Sergey Frolov, managing partner at NEFT Research, making urgent adjustments to the Tax Code is currently inadvisable, as it remains uncertain how long the Middle Eastern crisis will endure.
The second question concerns fuel prices in the domestic market. Since early March, exchange prices for gasoline and diesel have surged, reaching record highs for the year and gradually approaching the peaks seen last autumn. The Russian domestic fuel market is under close scrutiny from regulators, who seek to prevent price increases at gas stations that exceed inflation rates. However strict this control may be, gas stations primarily purchase fuel through exchanges or oil depots, which rely on exchange trades that, in turn, depend on the export alternative (fuel prices for exports).
Should gas station prices begin to rise significantly, the government may swiftly reinstate a complete ban on fuel exports.Currently, Rosstat reports a moderate increase in gas station prices, slightly trailing behind the average consumer inflation. However, this situation could change rapidly. The Moscow Fuel Association has already recorded a sharp increase in gasoline prices at stations in the capital - averaging an increase of 21 kopecks for AI-92 and AI-95.
Yet experts remain calm on this issue. Frolov explains that there are two reasons for the rise in exchange quotations for fuel. The first is seasonal factors; fuel consumption is increasing in both the private sector and the transportation segment, along with a significant rise in consumption in agriculture due to the commencement 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, has inevitably affected Russia, as it is one of the largest producers and exporters of petroleum products worldwide. However, the dampening mechanism will somewhat mitigate these consequences. Moreover, the government always has the option to impose a complete ban on fuel exports, which would halt price hikes. Thus, all depends on the regulator, and the key is to avoid delays in making necessary decisions, as has happened numerous times in past years.
However, Tereshkin posits that new export restrictions are unlikely. The increase in subsidies and rising revenues from petroleum product exports will lead to improved margins in oil refining. This should alleviate price pressure in the domestic market. Therefore, oil producers won't need to "hike" wholesale prices to generate additional income, which could mean a more stable situation in retail. Overall, paradoxically, rising prices in the global oil and petroleum product market could result in a temporary stabilization of the fuel market in Russia, notes the expert.
Source: RG.RU
