FAS Devised Draft Price Formulae for Oil Products
OREANDA-NEWS. March 09, 2010. The Federal Antimonopoly Service (FAS Russia) forwarded its proposals regarding price formulae for oil products, with necessary calculations and substantiation, and forwarded them to the Government of the Russian Federation and interested organizations and agencies, reported the press-centre of FAS Russia.
The price formulae devised by the Antimonopoly Service is based on the principle of equal efficiency of supplies to external and internal markets and can serve as an indicator of wholesale market prices for oil products based on generally accepted global price quotations that are formed in competitive external markets of oil products. The price formulae can be applied until Russia develops objective market indicators of prices, in particular based on quotations at liquid exchange auctions.
FAS Russia analyzed and calculated ex-works refinery prices for aviation kerosene, motor petrol and diesel fuel using the proposed price formulae (calculations for oil fuel are being completed). The analysis was made with participation of oil companies in activities the Working Group on Oil Products Pricing at the FAS Russia's Expert Council for Oil and Oil Products Market. FAS Russia also used materials prepared by several expert organizations ("KORTES" Information Centre, Eoil.ru, and "Argus Media").
The findings showed that wholesale prices for oil products in Russia are higher than prices on the comparable relevant global markets. The comparison was made using current Platts quotations on the basis of North-Western Europe, Mediterranean and Singapore.
External market quotations were defined as current global quotations for a specific basis. The indicated values minus duties and transportation costs from refineries (Net Back).
FAS Russia analyzed several options for defining Net Back:
1. Net Back of the main refineries, when the costs of transportation logistic are calculated on the basis of supplies by specific refineries;
2. Premium Net Back, which enables to form ex-works prices at the level of the highest Net Back of all refineries in the Russian Federation (in this case, the Net Back of "Kirishinefteorgsynthez" OJSC);
3. Possible Net Back, determined in the range (differential) of ex-works prices of a market refinery; in this case, FAS selected "Novo-Ufimsk Refinery" OJSC as it is equally distanced from the main consumption centres, is not included in the largest vertically-integrated oil companies, and is currently considered as a universally accepted quotation. The range (differential) can vary within minimum and maximum limits, calculated as a difference between maximum and minimum Net Back and/ or as transportation costs of oil products for the average distance. This value is +-1500-2000 Rubles per ton.
Based on these estimates, it is possible to determine the costs of buying oil products in all Russian regions. Calculations made on the basis of each of the three options give consistent results. The indicated ex-works refinery price and the price of buying products in the reigns, calculated in accordance with the above options, is 15-20% below the real prices on the market. It reflects overrated ex-works refinery prices, the costs along the chains of nonproductive reselling and non-optimal transportation logistics.
FAS Russia proposed to use these estimated indicators for market prices on the wholesale market of oil products at the present stage of development of market pricing for oil products in the Russian Federation. If real prices exceed the proposed indicators, it can be considered as the grounds for antimonopoly investigation of possible violations.
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