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19 Jul, 2007 02:02

Fuel follows oil: price hikes

Russians could be facing a hike in petrol prices as the global cost of crude oil jumps. Analysts are calling on the government to step in and help stabilise the market.

Despite being flat over the first half of the year, rising petrol prices could push independent sellers to the brink if they rise in the wake of a jump in crude oil.

Domestic oil prices are the main indicator for determining wholesale prices. The recent jump in crude prices, with upward pressure expected to continue, will significantly operating margins, particularly for independent retailers. And experts say the government should act

“If wholesale prices grow, it will especially hurt independent gas stations, those not owned by oil companies, about 60% of the market. They will be forced to raise retail prices and that is why the government should be thinking about how to prevent the rise,” shared his analysis Pavel Strokov, the Marketing Directorof Cortes, Moscow.

Taxes account for 55 % of the cost of petrol. That is where Grigory Sergienko, Executive Director of the Russian Fuel Union, sees the capacity to lower the price. However, he doubts the state will act.

“If the state is interested in lowering the retail price, it should either reduce the excise duty or reduce mineral extraction taxes, which are the key to that 55%. But I fully understand those who determine economic policy: when 40 % of the national income comes from the energy sector, it must be a very tough decision to lower taxes,” stated Mr Sergienko.

Still, Sergienko expects the retail prices to stabilize by October, despite rising global crude prices.

With the state raising oil export duties in August he sees prices following the same path as in 2006 when they peaked in fall and then subsided for the next six months. But independent retailers and consumers will be watching pump prices nervously until then.