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Why fuel prices in the US and Europe are rising against the backdrop of cheaper fuel in Russia

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Against the background of the aggravation of the situation around Ukraine and Western sanctions against Moscow, oil on the world market has risen in price by more than one and a half times since the beginning of the year. The sharp rise in the cost of raw materials led to a rush increase in prices for motor fuel in the US and Europe. 

Meanwhile, in Russia, gasoline, on the contrary, began to gradually become cheaper. In Russia, the current cost of a litre of diesel is just €0.54 cents. Experts attribute this to the action of a special damping mechanism. In addition, pricing features in the Russian fuel market also play a certain role, experts say.

The rapid rise in oil prices began at the end of February. This is how the market reacted to the imposition of sanctions by Western countries against Russia.

Recall that on February 21, Vladimir Putin announced the recognition of the independence of the DNR and LNR, and on the 24th he announced the start of a military special operation to protect the republics of Donbass from aggression from Ukraine. In response, the European Union, the United States and a number of other states began to impose anti-Russian restrictions.

Restrictions, in particular, affected the energy sector of Russia. Thus, Europe imposed a ban on investments in the country’s energy industry and stopped the certification of the Nord Stream 2 gas pipeline. At the same time, the United States and Great Britain refused to import Russian oil and other hydrocarbons.

Under Western sanctions, the fuel and energy complex of Russia today continues to operate stably in the normal mode. However, the restrictive measures introduced against Moscow have exacerbated the shortage of fuel in the Western countries themselves. This was announced on March 23 by Russian Deputy Prime Minister Alexander Novak.

‘Russia is the largest supplier of energy resources to world markets. The share of exports of Russian energy resources is about 20% of the world level of trade. It is absolutely obvious that without Russian hydrocarbons, the gas and oil markets will collapse ,’ Novak believes.

The feverish rise in oil prices has already led to a noticeable increase in the cost of fuel in Western countries. Thus, over the past month, gasoline prices in the United States rose by 20% to $1.12 per litre, and in the UK by more than 10% to $2.2 per litre. This is evidenced by the materials of the US Department of Energy and the British analytical fund RAC.

A similar state of affairs can be observed in the states of the European Union. According to Eurostat, since February 21, at gas stations in Germany, a litre of gasoline has risen in price by 19% to $2.36, in France by 10% to $2.17, and in Italy by 16% to $2.35. (In Europe prices per litre and nudging €3).

‘This is not the limit. There is a real shortage of oil products. This is the result of an irresponsible policy and decisions that do not take into account the real situation on the market, so the situation there is quite complicated,’ said Alexander Novak.

It is curious that against this background, in Russia, motor fuel, on the contrary, began to gradually become cheaper. According to the latest data from Rosstat, from February 18 to March 18, the retail price of AI-92 and AI-95 gasoline on average in the country fell by 0.2% – to 47.52 and 51.54 rubles per litre, respectively.

As part of the damping mechanism, the state compensates oil companies for lost revenues when supplying fuel to the domestic market. If domestic fuel prices are lower than export prices, producers receive compensation from the federal budget. With a higher cost of raw materials on the domestic market, companies, on the contrary, deduct part of their profits to the treasury.

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‘Thus, Russian gasoline prices are protected from excessive volatility in world markets by the operation of the damper mechanism. In addition, since the beginning of the special operation in the country, wholesale prices for fuel have also decreased. Interruptions in the supply of petroleum products for export-led to a more active redirection of fuel to the domestic market, as a result of which a fuel surplus formed in the country, ‘Sergey Kaufman, an analyst at FG Finam, explained to RT. Source

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