Why automotive fuel rises in price in Ukraine?

Author : Olena Holubeva

Source : 112 Ukraine

After a relatively short period of silence, we again witness the storm at the automotive fuel market in Ukraine. The most volatile segment - the autogas (liquefied petroleum gas) market - has become the next price increase driver. Prices confidently rushed to the mark of 14 UAH (0.5 USD) / liter. There are no prerequisites for reducing them until at the end of April. But whether the price will rise more than 14 UAH / 1 liter will depend on the volume of a resource filling the market. Following the autogas, gasoline also began to rise in price in Ukraine. Only the diesel fuel is stable
21:46, 15 April 2019

112 Agency

Autogas prices increase

After a relatively short winter period of stabilization in the motor fuel market, which came after the next round of price increases in the fall, numbers at the Ukrainian gas stations went upward again. Autogas is becoming more expensive. According to the Consulting Group A-95 price monitoring of the retail market, the average retail price of liquefied gas in Ukraine has increased over the last day by 3 kopecks / l, to 13.14 UAH / l. At the SOCAR and KLO stations, autogas went up by 14 and 15 kopecks. accordingly, up to 13.65 UAH / l and 13.49 UAH / l. Increased prices for 2-20 kop. were shown by other market majors - Shell, Glusco, Avtotrans, UPG, Marshal, SUN OIL, Mango. In general, the retail price of gas from the end of February increased by 2.80 UAH / l, or 26.9%.

As you know, autogas is a segment of the fuel market that is most susceptible to price volatility. In December and February, there was a large excess of LPG on the market. The price fell to 10 UAH (0,35 USD) / l, that is, below the economically logical level. However, traders were forced to sell LPG at a loss, realizing that if this is not done, today or tomorrow the price will be even lower. "The LPG market began to be in a fever at the beginning of the year: according to our calculations, during this period, deliveries exceeded consumption by 20-25%. This in turn forced domestic producers to lower prices below import parity to avoid the accumulation of excess goods," said the head of sales of liquefied carbohydrates in Poltava Petroleum Company Artem Postavny. As a result, according to him, all importers reduced supplies (this happened in February-March), thanks to which the situation gradually stabilized. In the second half of March, a slight shortage of autogas began to be felt on the market. Prices responded to it by rising 15-18%.

It is worth emphasizing that the decisive factor in the price on the Ukrainian market so far is import, which accounts for up to 77% of the total LPG balance. Basically, the resource is imported from the Russian Federation and the Republic of Belarus. "The price on the domestic market of Ukraine is more dependent on imports, because, as already noted, domestic production is not enough to meet demand. Therefore, import quotas could be a positive factor. This would avoid significant fluctuations in the market and would help to create more interesting conditions for domestic producers,” said Volodymyr Stetsyuk, Operations Director in Regal Petroleum Corporation Limited.

The largest domestic players last year reduced the production of liquefied gas. The Kremenchug Oil Refinery in 2018 reduced it by 13% to 87 thousand tons. Also, Ukrnafta reduced production volumes by 5,1% to 110,3 thousand tons. The largest producer of LPG - Ukrgasgas minimized production - by 0,5% to 164,8 thousand tons. Private extractive companies increased production by 17,6% to 34,6 thousand tons, but in general their share remains small and does not have a significant impact on the market yet. The largest among private producers is Geo Alliance (in 2018 it produced 17,4 thousand tons of LPG, which is 16,8% more than in 2017), the Poltava Petroleum Company (increased production by 4,1%, to 10,3 thousand tons), Regal Petroleum (increased production by 50% to 6,9 thousand tons of propane-butane).

It should be noted that a number of large companies have announced plans to build new gas production facilities: in particular, Burisma, Naftogazvydobuvannia (DTEK Naftogaz) and Ukrnaftoburinnia. However, according to experts, even if these projects are implemented in a short time, they will not be able to drastically affect the market situation. Ukraine will be dependent on import supplies for many more years, believes the CEO of the GT Group (the company selling gas) Vladyslav Kolodyazhny. "Even if all the announced projects will be implemented, the effect of their revenues on the market will level its growth, which in the foreseeable future will be at least 7% per year (forecast for 2020, consumption in Ukraine excluding petrochemicals will be 2 million tons). The maximum that the announced projects can count on is up to 5% of the total market volume, "he said.

Related: Oil price hits record high, gasoline prices in Ukraine continue soaring

An important factor that influences the price of LPG in Ukraine still remains the shortage of reservoir capacity. Due to the lack of availability of storage facilities for LPG, this market is difficult to tolerate even minor supply disruptions, especially during peak seasons, and is subject to price jumps, said auto gas market expert Artem Kuyun.

According to the expert, the level of the autogas prices, which the market has entered now, already allows importing small volumes by sea. And it is possible to talk about large volumes if growth continues until the end of April. Price is not the only factor influencing the diversification of gas supplies to the country. Imports from alternative destinations are more constrained by the capacity of the infrastructure, mainly railway.

Gasoline follows the autogas

It is noteworthy that autogas, which is traditionally considered a "social type of fuel" and a cheaper alternative to gasoline, has provoked a rise in prices for this type of fuel. According to market participants, the structure of fuel consumption in the Ukrainian market over the past 5 years has changed significantly: gasoline consumption fall, while gas consumption has doubled. Diesel consumption has also increased by more than 25%.

"I think that the reason for the current rise in gasoline prices should be sought in the ratio of prices for liquefied petroleum gas and high-octane gasoline, which is 48% today and approached the level when autogas loses its economic attractiveness to consumers," said Serhiy Sapegin.

According to the expert, retail prices for high-octane A-95 gasoline have changed by only 1.2% over the last month and amount to an average of 29 UAH (1 USD) for liter, which cannot be said about wholesale prices, which jumped 11% in a month.

A similar situation occurs around gasoline A-92, retail prices for which grew by only 1.1% over the month and averaged 27 UAH 48 kopecks per liter, while wholesale prices during this period went up by 12.3%.

“In the near future, retail gasoline prices may accelerate their growth. Moreover, the growth rate may be about 25 kopecks per liter. That is, in May we can see the average Ukrainian indicator for A-95 gasoline exceeding 30 UAH / liter” - said Sapegin, noting that the leaders in terms of the maximum price of gasoline are Luhansk, Donetsk region and Kyiv.

As other types of automotive fuel, the need for gasoline in Ukraine is closed due to import supplies. Until recently, the main supplier of this type of fuel was Belarus, also gasoline was supplied from Lithuania and Poland. At the same time, in 2018 gasoline supplies to Ukraine from Russia were resumed, but so far their volumes are insignificant.

Stable diesel fuel

Against the background of rising prices for autogas and gasoline, prices for diesel fuel, which are also subject to the influence of oil quotations and the hryvnia exchange rate, remain stable. "Analysis of the data shows that Brent oil rose by 6% to $ 70,61 per barrel. After some weakening, hryvnia strengthened again against the dollar at the end of March. Wholesale prices for diesel fuel at the border of Ukraine returned to almost the original level after a 3% increase over the last week and amounted to $ 658 / t on CPT terms. Simultaneously with the increase in temperature, a decrease in fuel density is observed, which is a factor of price reduction, ”says Sapegin. Thus, the retail prices for diesel fuel for the month practically did not change and make up 28 UAH 59 kopecks/liter.

Related: Ukrainian gas stations reduce prices: Would gasoline be cheaper?

Note that the market for diesel fuel in Ukraine is import-dependent. Last year, imports of diesel fuel increased by 10,7% to 5,81 million tons, breaking an absolute record. The largest supplier of diesel fuel to Ukraine was Russia, which pushed a long-term leader in this field - Belarus, according to the OilMarket.

Amid growing imports, diesel fuel production in Ukraine has declined. For example, last year, the production of diesel fuel in the country decreased by 13,8% to 610 thousand tons. In particular, the largest Ukrainian producer, the Kremenchug refinery (Ukrtatnafta), in 2018 reduced the production of diesel fuel by 13,9% , to 525 thousand tons. Another plant in Ukraine, Shebelinsky gas processing plant (part of the structure of Naftogaz of Ukraine), also reduced diesel fuel production last year by 12.7% to 85 000 tons.

However, there is no reason to worry about diesel prices in Ukraine. "If we talk about future prices, I would like to reassure the farmers and carriers somewhat. The economic outlook for wholesale prices for the coming week, taking into account the main pricing factors, indicates stabilization of small wholesale prices for diesel fuel at current levels with a small potential for decline until the end of the week. In the future, the price may start to grow at a rate of up to 10 kopecks per liter per week, "said Serhiy Sapegin.

Retail prices of diesel fuel will also remain stable next week, Sapegin predicts: “In the future, increasing seasonal demand and possible intervention of the political component in the pricing should be taken into account as a growth factor. Luhansk, Ivano-Frankivsk regions and Kyiv are the leaders of retail prices.”

Related: Ukrgazvydobuvannya to sell its own gasoline under Shebel brand

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