Shelling and destruction of the Kremenchug oil refinery and domestic oil depots, temporary fuel shortages and limits at gas stations, a complete reorientation of imports and price increases – the fuel market of Ukraine in 2022 has changed beyond recognition. What can Ukrainians expect in the new year?

The war, caused by the crazy decision of the Russian dictator Putin, reshaped all spheres of our country’s life, united the Ukrainian people, changed the usual structure of the skin, reorganized the national economy and the market, in particular – fuel.

Ukrainian traders, large and small chains of gas stations, logistics companies, producers of domestic fuel – all of them, immediately after the first Russian tanks entered the territory of Ukraine on February 24, found themselves in new, really difficult conditions.

The words of the Rashist leader about the beginning of the so-called “special military operation”, and in fact – a war against Ukraine, cut us off from 70 percent of fuel imports, which were traditionally imported from Russia and Belarus. At the same time, Russian pirates blocked maritime logistics by blocking domestic ports.

To get rid of such significant volumes of supplies at one moment, and later, from Russian bombings, – destroyed production facilities and oil depots, in conditions when the resource is needed by all: a temporary shortage of fuel. But, despite all the challenges caused by the devastating war, we entered the new year fully resourced.

“In the spring, we faced a fuel crisis, but thanks to our synergy in working with business, we also overcame this extraordinary challenge. – Minister of Ukraine Denys Shmigal.

We – consumers and entrepreneurs – survived these difficult 11 months. That’s why it’s time to make certain conclusions, remember how Ukrainians managed to cope with all the obstacles, what it cost, and try to give a forecast: what to expect in the new year 2023 for industry workers, traders, motorists and passengers.

Reorientation to Europe

The situation of the fuel market at the end of February – the beginning of March required quick solutions to cover lost import volumes. Domestic gas station chains immediately began to reorient logistics chains from east to west, primarily to Poland and Romania.

“For the most part, the ports of these countries are used for transit. Supplies from Lithuania go through Poland… Romania, in turn, is the main port of Constanta, cargoes from almost all over the world go there,” Serhiy Kuyun, director of the A-95 consulting group, said.

There were many factors that quickly changed the direction of imports at that time: the lack of permanent suppliers of fuel, which still had to be found in Europe, and long queues at border crossings created by frightened citizens fleeing the war, and Ukrainian and European bureaucracy, which sometimes interfered to import a sufficient amount of gasoline and diesel fuel in a timely manner.

“From the first day of the aggression, we understood that we were left without fuel, since Belarus and Russia accounted for 70 percent of the supply of oil products in the pre-war period. We understood that we were entering a deep crisis,” Dmytro Lyushkin, the founder of the Prime gas station group, told a correspondent.

At that time, industry representatives and energy experts proposed to the government to reduce taxation and abolish the excise duty. This, according to all the rules of economic theory, would allow entrepreneurs to buy more fuel while keeping the same prices. They also discussed easing state price regulation.

Later, the government did reduce the tax on gasoline and diesel from 20 to 7 percent and abolished the excise tax. Because of this, fuel prices fell by 5-10 hryvnias literally in a day. At the same time, government officials, in order to increase the volume of imports, allowed entrepreneurs to import fuel of a low quality standard.

But these decisions took almost all of March. If the state really reduced its pressure on business, which made it possible to increase the volume of supplies in the future, the situation with fuel was complicated by Russian missile attacks on oil depots. The occupiers tried to prevent us from storing fuel.

State regulation of prices and temporary shortage of fuel

Although the government went to the meeting of business, reducing, but not canceling the control over the fuel industry, the Russians intervened in the matter of saturation of the domestic fuel market. They began to attack Ukrainian oil depots and the country’s largest oil refinery in Kremenchuk, which provided gas stations with cheap domestic product. This instantly caused a sharp shortage.

The Russians’ destruction of part of the fuel reserves required gas station owners to increase imports to cover demand. At that time, state regulation of prices, the ceilings of which did not correspond to the market conditions prevailing at the time, hindered the increase of supply volumes and the introduction of new players into Ukraine.

“There were no new traders due to strict price regulation, which made this business unprofitable. We were patient until the end, until the “greased rooster pecked”. And it pecked when all stocks were sharply crushed,” said Dmytro Lyushkin.

According to him, Ukrainian business had to compete for every liter of fuel, buying it from Europeans, deploying expensive logistics. In order to do this, a “maneuver” in price policy was needed.

“The state regulation established a clear framework beyond which we could not go. It slowed down for two months the development of new players who managed to change the situation in the future. If it had not been there, the transition would have been much smoother, and we would not have had these toughest months.” , – Continuing the expert.

Due to the acute shortage of the product and the regulation of fuel prices, large and small gas station chains were forced to introduce limits at gas stations. Entrepreneurs had to choose: sell at a loss or not sell fuel at all. Often even at large gas stations there was no resource.

There is no shortage, but prices are high

Later, state control over prices was abolished and the market began to gradually become saturated with the product. The consequence of the acute shortage was high fuel prices, which during the spring-summer period were actively growing. In particular, diesel from 32 hryvnias per liter reached 55-56 hryvnias in half a year and still remains at this level. A-95 gasoline is almost the same – from 33 to 52-53 hryvnias.

As a whole, traders ensured consumption in the country already at the beginning of autumn, but even now, prices do not return to the old indicators. There are several reasons for this. The first is a change in the pricing formula. All last year, according to experts, we had record prices for oil on the world market since 2008, which reached $140 per barrel in March. This resource is essential in the production of fuel.

“Previously, the pricing formula looked like this: the world quotation plus $20-40 per ton. Currently, we have the following formula: the world quotation plus $200 per ton. And, in addition, we have very expensive transportation,” said the director of the consulting group “A -95” Serhii Kuyun.

Almost 40 percent of fuel coming to Ukraine by road transport is more expensive than all other types of supply, the expert emphasized. Also, it should be understood that imports through the western border cost more than from pre-war fuel suppliers to the domestic market. And, accordingly, all this is also reflected in the price.

“We’re taking the hell out of nowhere now: we have 4 hryvnia markups per liter – it’s just delivery, and even 6 hryvnias if we’re taking fuel to the east of the country,” Dmytro Lyushkin said.

The devaluation of the hryvnia is also noted for fuel. Due to the war started by Russia, our national currency weakened to 40 hryvnias per dollar against the pre-war 25-27 hryvnias. In addition, the government’s return of the excise tax on vodka at the end of the summer contributed little to the high prices of gasoline and diesel.

New logistics – new challenges

The new resource supply scheme performed well during the warm months of last year. But with the arrival of winter, our fuel sellers have new problems. The first is the European Union’s oil embargo on the purchase of Russian crude oil. The fact is that since we have supplies from Europe, all the problems of the region are reflected on us.

“The system turned out to be quite good, safe and flexible. But we are duplicating global problems. What is the value of Europe’s rejection of Russian oil. From February 5, there will be an embargo on oil products, and we can see that Europe is very nervous and the whole world is nervous,” said Serhiy Kuyun .

On the European market, we are not regular buyers, and because of this, in the eyes of large oil refining companies, we stand as an “outsider”. Because of this, we have to repurchase fuel from Europeans, offering a higher price. Given the excitement in the region due to the oil embargo, this adds to the problems of Ukrainian entrepreneurs.

As experts noted, the saturation of the domestic market is also influenced by weather conditions, which this winter may affect the availability of oil products in the country. Thus, in December, the movement of large trucks in Poland was slowed down due to snowfall. Near the Black Sea, due to storms and fog, tankers are delayed in Romanian and Bulgarian ports.

“On the railway, there are other factors. In the same Poland, the priority is the transportation of coal for heating, fuel has been relegated to another plan. These are also delays. All this requires responding to new challenges for us, which we did not even imagine they could be,” – fuel expert Kuyun continued.

Inside the country, the logistical situation is complicated by constant blackouts and air strikes. It happens that the registration of trucks takes several days, when fuel at gas stations is usually pumped for a week. If a few days “fall out”, then there may already be some difficulties with the resource at the gas station. Of course, this wouldn’t be a problem if the Russians hadn’t crushed most of our oil depots in early April.

Forecasts for 2023

Taking into account all the possible challenges, experts predict that in the first quarter there may be some excitement on the domestic fuel market. In addition to weather conditions and power outages, the purchase of diesel by farmers, who usually start preparing for sowing at the end of February, is added.

“I think that we will have a difficult first quarter, because during the first quarter there will be a search for new volumes that will replace Russian volumes in Europe. Accordingly, when we buy in Europe, we will duplicate these problems. Going forward, I think that the market adapts and rebuilds quite quickly,” Serhii Kuyun said.

Experts noted that a lot will depend on the Romanian part of the Danube in winter. And this is not surprising, because due to the blocking of domestic Black Sea ports, this river is very important for us. Currently, fuel is brought to the country not only through the western border. The Danube ports are also actively used for this purpose.

“In February, if the Danube freezes, there will be excitement. If it freezes, then only small boats will be able to enter near the mouth of the river. This will also complicate the situation. If the Danube is full of water, then large boats will enter, the supply will be better,” said the owner of the Prime gas station Lyukin.

But taking into account the weather conditions that prevailed during the New Year holidays and in the first days of January, the assumption that the full-flowing Danube can completely freeze this winter is unlikely, because this requires the establishment of a stable minus temperature in the southern region.

Lyushkin said that next spring may meet consumers and gas station chain owners with a “tough” period with an increase in fuel prices due to the need for a seeding campaign. After Easter, during the May holidays, there will be a lull. In general, this year will pass under the sign of the weather, a lot will depend on it.

Representatives of the fuel business also say that now, due to various problems, fuel trucks stand at the border with Ukraine and wait up to 4 days to cross it. And for a country without large oil depots that relies on gas station storage, this is a significant delay.

A minimum of fuel is required

In 2023, we entered with a new logistics system and a one-time rejection of the Russian and Belarusian resource, which no country in the world had done before. Europe is now abandoning Russian oil products, which until recently accounted for 40 percent of the balance of consumption. We were forced to give up all the burning aggressor country at once – in a few hours, and ended last year without a deficit, but with higher prices at gas stations.

The growth in demand this year may also be influenced by the active purchase of diesel and gasoline generators by businesses and citizens, which consume additional volumes of fuel in conditions of constant power outages. The lion’s share of generating sets – over 85 percent – run on gasoline. Others are mainly on diesel fuel.

Experts estimate that the mass use of generators has increased the demand for fuel by 10 to 20 percent. As a result, in November – December, the prices of gasoline and diesel fuel in Ukraine increased by two hryvnias per liter.

It should also not be forgotten that global oil quotations will be reflected in the prices of oil products. Although fears of a global recession and the corresponding general decrease in demand are currently keeping prices more or less stable – at the level of 76-84 dollars per barrel (remember that in March 2022 oil rose to 140 dollars per barrel), but the value of black gold may change during the year. In Europe itself, there is enough fuel now, and if necessary, we will be able to buy more of it.

It is also important to take into account the dollar exchange rate this year, as an important factor affecting the national fuel market. It is difficult to predict exactly what it will be, but the government has included in this year’s forecast a slow devaluation of the national currency. Government officials believe that the average annual exchange rate will be approximately UAH 42.2/dollar, and by the end of the year it will be at the level of UAH 45.7/dollar. If the forecast comes true, such a weakening of the hryvnia will be reflected in a moderate increase in the price of fuel at our gas stations.

Taking into account the experience gained last year, the authorities set a goal this year to create the necessary minimum reserves of oil and oil products.

“In 2023, a legislative framework will be created to carry out the reform of the State Reserve, in particular, this issue concerns the formation of minimum reserves of oil and oil products in order to ensure its continuous supply to the domestic market,” said Prime Minister of Ukraine Denys Shmyhal.

It is very important not only to create reserves, but also to be able to protect them from possible Russian missile attacks. For this, the authorities and our defenders need to focus their attention on closing the airspace of Ukraine with the latest anti-aircraft defense systems. Similar systems like the American “Patriot” are already on their way to protect our country

This year is preparing new challenges for us, but it seems that for the fuel industry it will be a little easier than the previous one, because now our specialists are ready for everything: a large transport fleet, experience and understanding of where to get fuel and how to deliver it throughout the country . In particular, experts note that a repeat of last year’s acute deficit is very unlikely, because Ukrainian entrepreneurs are ready for possible problems.

So, from what is available, it is the wild Russian invaders that prevent us from living peacefully. But taking into account the successes at the front and the support of Ukraine’s allies, it is clear that soon the racist invaders will be driven out of our land by the heroic Armed Forces. Then we will meet victory in a completely changed, hardened country. And enough fuel to implement all our big plans.

Artur Kryzhnyi