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. Last Updated: 07/27/2016

Experts Say Oil Hike Sign Of the Times

The decision Wednesday by the Moscow city government to raise prices for petrol at the pumps is a sign of the spreading liberalization of the Russian crude oil market, according to oil industry experts.


Underlying the rise in the price of A-76 petrol in Moscow to 32 rubles from 23 rubles is a general shift away from state controlled prices for Russia's main export commodity, crude oil.


Russian oil prices were controlled by the state at below 2, 000 rubles per ton until a decree on Oct. 17 which officially deregulated prices. At the time, the government promised prices would only rise to 5, 000 rubles.


Many in the oil industry also doubted that prices would rise because the decree also established harsh new taxes and excise duties which penalized firms charging high prices.


At its latest sales, the Russian Stock and Commodity Exchange sold crude oil for between 13, 000 and 30, 000 rubles per ton, with an average price of about 24, 000 rubles.


But Vyacheslav Nikiforov, economist for the state oil company, Rosneftegaz, said: "We are moving away from prices set by the state to prices agreed between producers and consumers".


Sergei Sazhankov, an oil trader for the Shell International Petroleum said the government had accepted it was difficult to force producers to supply crude oil for state needs at controlled prices.


Although volumes traded on the exchange are low, the Moscow case shows prices are also rising for off-market sales.


According to an Interfax report, the Russian state oil concern, Rosneftegaz, said that the petrol price hike in Moscow was the direct result of a rise in the price of crude oil.


The Moscow oil refinery, which supplies 80 percent of Moscow's petrol, could now only obtain crude oil for refining at prices between 12, 000 and 16, 000 rubles per ton. Under its previous buying agreement, it had bought crude oil for between 9, 000 and 10, 000 rubles per ton.


Taking into account relative exchange rates, this would mean crude oil in Russia is now priced at 20 to 50 percent of the world price, compared to one sixth of the world price as recently as October.


Unprofitably low internal oil prices are one of the main reasons for the 15 percent fall in crude oil production over 1992. Russia restricts producers from selling internationally at the world price by a system of export licenses and quotas.