March promises to be very interesting both for participants in the oil market and for end consumers. As soon as the new government decided to cover a significant part of the budget deficit at the expense of oil industry players by reinstating from March 1, 2005 the collection of VAT at a rate of 20% on oil imports, people immediately began talking about a possible rise in the price of petroleum products both on the wholesale market and in its retail segment.
After all, at the present moment, according to operational price monitoring data conducted by state price control bodies, during the second ten days of February, in most regions the petroleum products market saw a decline in average retail price levels for certain types of petroleum products.
Thus, diesel fuel became cheaper in 20 regions. A price increase occurred in 1 region. A-76 grade gasoline became cheaper in 17 regions: from 0.4% in Kyiv Oblast to 3.8% in Donetsk Oblast. No price increase was recorded. A-95 grade gasoline became cheaper in 14 regions: from 0.3% in Vinnytsia, Khmelnytskyi, Zhytomyr, Kyiv, Chernivtsi, Luhansk, Mykolaiv, and Sumy Oblasts to 2.1% in Rivne Oblast. A price increase occurred in 1 region. In other regions, prices for petroleum products remained at the level of February 10, 2005.
As of February 20, at the filling stations where monitoring is carried out, the average price of diesel fuel across Ukraine as a whole decreased by 0.7% and stands at 2.73 hryvnias. Average retail price levels in the regions range from 2.63 UAH in Odesa Oblast to 2.82 UAH in Kyiv.
Now the situation promises to change in the other direction. Let us recall that Prime Minister Yulia Tymoshenko immediately expressed her confidence that this government decision would in no way be reflected in domestic prices for petroleum products. She also announced an agreement reached with representatives of oil companies that petroleum products produced in Ukraine would not become more expensive.
At the same time, Ihor Yeremieiev, a member of the Verkhovna Rada Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety, is convinced that in connection with the introduction of the oil VAT, wholesale and retail prices may rise slightly, but they will rise. Oil traders themselves say that an increase in the cost of petroleum products cannot be avoided. Most experts note that the collection of VAT on oil imports will most likely lead to an increase in retail prices for petroleum products by 3–5%.
They explain the expected price increase by the fact that at the stage of customs clearance of oil, leading operators that supply oil to Ukraine for refining will have to spend their own working capital to pay VAT. And if they do not have enough, they will have to use credit resources, which, as is well known, are not free. Oleksandr Horodetskyi, president of the company LLC "Trading House "TNK-BP Ukraine," also speaks about a possible price increase. "The emergence of additional credit interest in the cost structure may lead to an increase in prices for petroleum products, but for each specific company these are different amounts," he noted in his comment to Kommersant magazine.
In his opinion, for the Lysychansk refinery, which is part of TNK-BP, the innovation will not exert significant economic pressure on pricing. At the same time, representatives of some other Ukrainian oil refineries expressed a different opinion. Having calculated the average volumes of oil imported into Ukraine, the period of its refining and sale in the form of finished petroleum products (from 2 to 5 months), as well as the credit funds borrowed from a bank to pay VAT, they reached the following conclusion: with today's record-low profitability, after the introduction of the import VAT on oil, their plants will find themselves in an even more disadvantageous position.
In addition, one should not forget about other important factors that exert their influence on price formation in the domestic petroleum products market. First, the rise in prices for raw materials in Russia automatically leads to higher prices for crude oil for Ukraine. According to analysts of Russian oil companies, the cost of March oil resources for Ukraine may reach more than 250 dollars per tonne. Second, a serious factor is the change in world oil prices, which have recently resumed growth and exceed the psychologically important level of 50 dollars per barrel. Despite the onset of spring, oil is in no hurry to become cheaper; moreover, its growth trend persists for now.
Currently, the Ukrainian market is supplied with fuel at practically world prices. The difference, according to analysts, is 6–8%, and taking into account the anticipated discount for wholesale buyers, it is a few percent. And although the supply of fuel on the market currently exceeds demand, it appears that the situation will change already this month. After all, in addition to the reasons indicated above, the seasonal increase in demand for fuel will contribute to price growth.