Published: February 16, 2011
Russia to Probe Unfair Fuel Price Hikes By Oil Companies
By A. L. Lamar
Russian Prime Minister Vladimir Putin blames oil companies for price fixing as the increase in retail prices for gasoline, Russian jet fuel and diesel continues to race skyward. Their domestic market is seeing price increases strikingly similar to those currently seen in the United States. Fuel prices are expected to be a potential source of social unrest as 2012 elections loom and growl like a menacing, low wall of storm clouds boiling on the horizon.
Putin on Wednesday instructed the Federal Anti-Monopoly Service [FAS], to investigate unfair fuel price hikes by oil companies, while the U.S. Government seems remote and oblivious to the actions of oil companies. Perhaps the U.S. still reeling in shock and awe over BP's monstrous Gulf accident and has forgotten that MONOPOLY is not always a board game. Monopoly is sometimes a super-conglomerate which is vertically aligned as a tight ship.
In 2010, the Russian Energy Ministry and FAS found that oil companies indeed manipulated prices by creating an artificial shortage of (aviation type) kerosene and diesel fuel. Industry experts, myself included, projected domestic fuel price hikes of a significant nature for 2011, possibly exceeding inflation targets. One reason is that Russian domestic oil companies carry a social burden paid out as obligatory subsidies to all kinds of State-owned institutions, however; an additional dip into their pail in the form of a new excise tax on petroleum only partially explains steep hikes in fuel costs.
Renaissance Capital investment bank was quoted as saying, "Excise duties have also been increased twice over the past year, and this has been passed on to consumers in the form of higher prices. Then there is the practice by oil companies of transferring oil from their refinery in one region to another, rather than buying locally, thereby increasing transportation overheads."
The sheer size and remoteness of Russia and its mythic oilfields is of epic proportion and opening its vast reserves is a feat yet to be seen, therefore; it seems almost certain that buying locally cannot be accomplished for most of Russia for many, many years to come - if ever. Climate change will alter life, weather patterns, and terrain in the Northern hemisphere.
The Russian government has done very little to control pricing policies among oil companies, which continue to elevate prices to pass along costs created by excise duties coupled with upward spikes of global oil prices.
The FAS alleges that two major companies, Gazprom Neft and Slavneft, intentionally reduced jet fuel deliveries by more than 40 percent, creating an artificial shortage and spike in jet fuel costs. The FAS is preparing to issue its third bloodbath of fines against oil companies for manipulating oil product prices on the Russian domestic market. The U.S. Energy market must also weather the battering caused by the price boom's concussions. Under normal circumstances these companies are immune to reproach because they are viewed as the engine of economy.
Prime Minister Vladimir Putin took a hard-line government stance once before on the oil majors in 2008, ordering the anti-monopoly service [FAS] to investigate exorbitant gas prices. The agency set records with hefty fines against Russia's biggest oil companies, respectively: Rosneft, $48 million; LUKoil, $50 million; TNK-BP $36 million; and Gazprom Neft $45 million, totaling some $183 million.
The United States has no current energy policy.
UBS prefers to avoid confrontation with Russian oil companies, seeking protection from the climate by repeatedly suggesting increased competition at the retail end of the oil market. State regulations to control domestic oil prices through the FAS will fail in theory. Regulations will make it complex and difficult, too hard for oil companies to explore new markets, where lay the risks of deficits and further price increases. An argument for de-regulation may be occluded on the horizon; conditions and human will certainly exist. Increased competition at the retail-end of the oil market will come in many forms, from electric autos to alternative energy sources, abatement and property improvement, and possibly some form of de-regulation, and if vertically integrated (as so are the oil companies), then the transition is potentially a smooth and prosperous one.
A. L. Lamar
angelalamar@execs.com
Plano, TX
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