Fuel situation worsens for air carriers as crude price rises and fuel is in increasingly short supply

Published: 10/12/1999

The fuel shortages that have beset the Russian air transport market show little sign of abating, as the price of domestic crude rose by more than 15% last week. The reasons for the shortages, according to market analysts, appears to be the diversion of both crude and oil products to the exports markets in order to yield higher prices, so leading to a deficit in the Russian market. Shortages have become so acute that certain traders have been forced to import gasoline to meet demand over the last two months, while others have been producing and exporting lower end fuel oil and diesel at the expense of domestic gasoline, causing disruption to a fairly finely balanced supply and demand situation. Given that the main current shortages are in gasoline, it seems likely that the aviation fuel supply will continue to be affected, so adding further pressure to an already poor situation. Reports indicate that, with Urals - the Russian export crude - trading in Northwest Europe at $19.75 against $17 domestically; the incentive to export remains strong, accompanied by commensurate rises in fuel costs. In the Far East and Siberia, the situation is further aggravated by the circumstances surrounding Angarsk refinery, the largest of the three refineries in the Far East. Owned by oil company, Sidanko, the refinery has been left in limbo following a decision by the government to take control from the company. This has resulted in Sidanko supplying the refinery on prepayment terms and at prices of around 2800 roubles a ton: far above the level of European Russia, where crude trades at Rb 2100-2400 a ton. Other suppliers have also taken a similar view of supply, given the uncertainties, which has meant that, despite the protestations of the refinery's General Director that he can pay, crude supplies have fallen. The other two refineries, based around Vladivostok, have been unable to fill the gap, given their small size.

Article ID: 969