Thread by @Prune602

‼️ Russia: “Traders are tired of waiting for fuel: Market participants report increasing delays in shipments”

Refineries & Railroads are factors.

There is also surprise news that has been hidden from the public. It should serve as a warning.

kommersant.ru/doc/6890869

“fuel market participants are increasingly faced with extensions of shipment deadlines for gasoline and diesel fuel purchased on the exchange by refineries and even defaults on such transactions…”

“…The most critical situation is with AI-95 and AI-100 gasoline, the demand for which is rapidly increasing…

“…Market participants attribute the failure to meet shipment deadlines to a shortage of these grades in conditions when oil companies need to supply their own gas station networks, a shortage of tank cars and the situation in the Russian Railways network.”

Reminder of the “situation in the Russian Railways network” ⬇️

https://twitter.com/prune602/status/1820237131148673325

“Exchange traders are paying attention to the increasing delays by oil companies in shipping gasoline and diesel fuel, as well as defaults”

IT’S GETTING WORSE!

“According to the rules of the St. Petersburg International Mercantile Exchange, the period for shipping exchange goods should not exceed 30 days, but the situation has worsened in the conditions of increased summer demand.”

“Default occurs when, in the event of a violation of the 30-day period, the buyer and the refinery are unable to agree on extending the terms of the transaction. In the event of a default, the supplier must pay a fine of 5% of the contract amount.”

Oh dear…

“But if the price of fuel rises by more than this amount, the buyer often agrees to extend the transaction, because otherwise it has to buy a more expensive product.”

So traders of the choice of

👉 getting 5% of the original contract price FOR FREE now and making a new contract.

Or

👉 Keeping the locked in contract price and just waiting longer.

“the most critical situation is with AI-95 and AI-100. The cost of AI-100 at refineries already exceeds 100 thousand rubles per ton, and the shipping period in some cases is more than two months, notes one of Kommersant’s sources.”

2 MONTHS!

“Over the past few months, about 10% of gasoline and diesel fuel deals have been extended, estimate two Kommersant sources on the fuel market.”

How much are the refineries paying out for defaults? 🤨

“Among the largest oil companies, LUKOIL is the one extending the most deals”

‼️ LUKOIL’S “Nizhny Novgorod refinery, where the catalytic cracking unit failed at the beginning of the year, is one of the largest producers of high-octane gasoline.”

‼️ “Although it was reported in June that the unit had been restarted, Kommersant's sources in the industry believe that production has not been fully restored until recently.”

👉 THEY LIED ABOUT GETTING THE FCC BACK ON LINE

If you’ll recall, they kept giving, longer and longer dates on when this would be up and running.

https://twitter.com/prune602/status/1773876309560553930

Here is the report when it went down

https://twitter.com/prune602/status/1746782356021649754

And the outage wasn’t caused by Ukraine’s drone strikes. It was a compressor that failed.

https://twitter.com/prune602/status/1746784857294872965

“According to them, the Nizhny Novgorod refinery has still not resumed sales of AI-95 on the exchange and primarily supplies the company's gas stations. LUKOIL did not respond to Kommersant.”

Several LUKOIL executives have died btw

“Independent petrol stations have repeatedly complained that oil companies sell less high-octane gasoline than the market requires.”

🍿 Oh dear…

“As a result, the stock market price of AI-95 is at the 2024 highs, and the profitability of sales of AI-95 and AI-100 at petrol stations is either negative or close to zero.”

What happens when the petrol stations can’t turn a profit? 🙃

“Another Kommersant source believes that a number of companies were selling “air” — goods that they were not able to ship, explaining the difficulties by scheduled or unscheduled repairs at oil refineries and a shortage of tanks.”

Nothing like a nice blame game!

“Another Kommersant source sees the problems of extending the terms of shipment of goods in the physical shortage of fuel at some oil refineries. Oil refineries sell goods on the exchange from more distant production in order to prevent a sharp reduction in daily sales volumes.”

Remember how I keep warning you about Russia “wagging the dog” and messing with data?

Well that’s a good example. This way their daily sales look good!

“In addition, additional problems arise during shipment — the inability of Russian Railways to promptly accept tanks in some limited directions, as well as a shortage of tanks at some oil refineries.”

🍿

In addition, I’ve told you before that every time Russia either implements a gasoline ban OR removes one, it causes difficulties for Russian Railways. 😂

By the time they finally get close to untangling everything, Russia changes it and the process starts over.

Here they note the obvious. Supply and demand is a problem. This will transfer increased prices on the wholesale market.

The problem is that normally these prices are then transferred to the consumer and that begins to limit demand. BUT NOT IN RUSSIA!

In Russia there is a limit to how much the gas station can sell the fuel for. This then allows Russia to manipulate the Consumer Price Index and keep their “official” inflation numbers low.

Unfortunately, the big flaw is that the gas stations may go bankrupt.

See the trend?

This next part is what I’ve been chewing on. So be forewarned, I have questions here myself.

“"In such a situation, to cover the growth in sales at their gas stations, oil companies will need additional volume, which they do not have now. As a result, they will be forced to reduce sales on the exchange or buy goods from each other," says a Kommersant source.”

So…

“Oil companies will need additional volume”

To me mean that the refineries aren’t producing enough fuel to meet demand (especially not high octanes)

And..

“a result, they will be forced to reduce sales on the exchange or buy goods from each other”

So, these oil companies have their own fuel stations (I think).

*sigh* brief explanation

Your fuel is supplied from the nearest refinery regardless of who owns the fuel station and who own the refinery.

For this reason, (in the US at least) you will often find that places where 2 or more refineries distribution areas overlap have some of the cheapest prices.

Sometimes there’s a running joke that fuel next to a refinery it’s more expensive because it’s “fresher” but it’s really just lack of competition and they need to compensate for the cheaper prices in competitive markets.

So back to our quote:

“a result, they will be forced to reduce sales on the exchange or buy goods from each other”

Makes me wonder if they’re considering making secret deals between oil companies to make sure THEIR fuel stations are supplied.

This would then leave the independent fuel stations (those not owned by refiners) on their own

“due to the cancellation of the second session on the SPIMEX in the fall of 2023, it is unclear how much fuel oil companies are buying from each other. An increase in the volume of such transactions could provoke a further increase in prices, Kommersant's source believes.”

‼️“Mikhail Burmistrov, CEO of Infoline-Analytics, says that the shipment of petroleum products from refineries is affected by a sharp decline in dispatching efficiency on the Russian Railways network.”

Like I told you!

Also, I would love to have this guy’s data. He seems sharp.

“"Tanks have been submitted, GU-12 permits have been received, but additional approvals from Russian Railways in accordance with the dynamic infrastructure loading model and the daily client loading plan cannot be obtained, which is why downtime occurs," the expert notes.”

🍿

I think the “dynamic infrastructure loading model” maybe operating in manual mode.

😂

Based on reports, it appears that Russian Railways is struggling to predict when or if a locomotive will be available. Add in derailments, equipment failure, partisan attacks, short notice shifts in priority from the government, Ukraine invading Russia, and so on….

They’re flying by the seat of their pants. Sort of like they’re operating in triage mode (or perhaps whoever is able to payoff the right person gets shipping)

It’s delicious, and it’s getting worse.

“In addition, according to him, the shipment times were affected by the consequences of attacks on Russian refineries, which were unable to fulfill all their obligations as a result of repairs.”

NOTE: ITS NOT JUST THE ATTACKS

Remember that LUKOIL refinery we discussed lost one of their FCC units as result of equipment failure and SANCTIONS kept them down.

Loss of skilled personnel and sanctions are also hurting refining. Western Engineering services were even cut off via sanctions.

In summary

IT WILL GET WORSE

~ The End ~