Media: will a decline in oil prices lead to lower prices for products manufactured in the oil industry?

14:00 | 26.04.2020

Today, everyone is watching with great interest the situation that has developed on the world oil market, for the price which is dropping or even going to minus. People care how it affects the price of gasoline, diesel and motor oils. Pro.Berdyansk.Biz addressed the head of the supply sector of AZMOL BP, Daria Dudko, with a request to comment on the current situation in the oil industry.

- Fluctuations in the oil market continue, you and I have witnessed how WTI crude oil generally went negative, and the next day it returned to plus. Price jumps are recorded daily, but it is very difficult to predict how this will affect the retail price. After all, oil under futures contracts with a reduced price will go on sale no earlier than two, or even three months, -explains Daria Dudko. - And oil products, which will be obtained from cheaper oil, will go to retail several months after the sale. So there is no reason to expect any sharp jump in retail prices. Indeed, at gas stations and in production, non-crude oil or a resource is used under futures contracts! We are interested in the products that are obtained during the refining of oil. Moreover, when oil prices fall on the one hand, we are witnessing a crisis situation in connection with the global coronavirus pandemic, on the other hand. And this means a decline in production, reduced transportation, and so on. That is, instead of the planned sales, we get a smaller turnover. Products that are already ready for sale today have a price formed without taking into account fluctuations at the oil market, and while cheaper oil still comes to us, I’m sure we will face an artificial crisis in the oil refining industry. For example, the Psyche Scientific and Technical Center, which has been operating in the Ukrainian petroleum products market since 1996, represented by Director Gennady Ryabtsev, explained on April 22, 2020 that the fall that occurred on the oil exchange has nothing to do with the real supply-demand ratio in the physical oil market. According to him, this is a speculative moment that will not affect prices in Ukraine in any way; it will not lead to a stable reduction in the price of fuel or motor oil. I’ll tell you more, some members of the Institute for Energy Strategies already say that after the quarantine, the situation on the oil market will completely change, business activity will increase, and the price of oil will begin to grow. In this regard, the Institute already suggests that by May-June there will be a reversal of oil prices in the direction of growth. The situation with jumps in oil prices, with its cheapening, has been going on for several months. A slight fluctuation in the prices of quotes for base oils began to appear only from last week. This can be seen from official sources of the global analytical company ICIS and the independent analytical agency ARGUS. Which, in fact, suggests that the fall in oil prices will not yet be reflected in the cost of lubricants.

- So what turns out that all the hopes of motorists for cheap gasoline and oil are in vain?

- Once again I repeat. Motorists do not fill futures contracts or oil into the tank, just like we do not use crude oil in the production of motor oils and lubricants. You asked me about the forecasts. I will give you this example: the long-term forecast of the independent analytical agency ARGUS from August 2019 to July 2020 showed us a steady increase in prices for the oil products we use in production from January 2020 to July 2020. Accordingly, in order to provide AZMOL consumers, customers and partners with a product at an affordable price, our company purchased base oil at October-December 2019 prices. That is, today we have products at an absolutely adequate price and no “storm” in the oil market can affect this value in principle. As for the oil, which has now fallen in price, the process of its processing and sale will take several months. Plus to this note, I think it is no secret to anyone that base oil producers in times of crisis reduce production volumes and rates. What creates an artificial deficit in an attempt to keep the price. That is why we see no reason to predict any significant reduction in prices in the production of motor oils, and in their subsequent sale. As for gasoline or diesel fuel, I can add that these products in production require significantly less time and labor than in the production of lubricants. Accordingly, in the retail sale of diesel fuel and gasoline, oil price surges are displayed more quickly and significantly.

- It turns out that the situation on the world oil market will only lead to lower prices for diesel fuel and gasoline?

- To this question you, like me, will be answered only by time and by the steps that will be taken directly by bidders on the world oil market. AZMOL is engaged in the production of lubricants in the Premium segment. The price formation of our oils and greases consists of purchase prices for base oil, additive prices, production costs and logistics. I note that AZMOL uses exclusively the world's best additives manufactured by such companies as Infineum, Afton, Lubrizol. And we do not have forecasts for reducing the price of these additives. Also, the cost of the final AZMOL product depends on many factors: salary, energy costs, operation of production facilities, packaging material, transportation costs. Therefore, for today I see no reason for a significant reduction in the prices of our products. How the situation will develop further, only time will tell.