Рубрика | Oilreview

11/11

The list of the most important events in 2011 offered to our Dear Reader is not a rating, as it is impossible to define which of them will have the greatest impact on the development of the market. It could be the eventual failure of the fuel quality control system, which demonstrated that Ukrainian officials don’t care about the origin of the funds they get. Or it could be the fight for Libyan energy resources, which showed the entire world that an opponent’s opinion no longer has to be taken into account.

ESTABLISHING A NEW CRUDE OIL ORDER

Although the modern history of Ukraine is traditionally divided into three stages, the last stage has not yet finished. Of course, «the wild nineties» are not returning, but indicative changes seen on the fuel market force one to speak about the establishment of a new crude oil order in our country.

The following signs are omens of its beginning:

1. The worsening economic background.

The recovery of the world (and Ukrainian) economy is lackluster. In the foreseeable future, there will inevitably be a global redistribution of wealth at the expense of «burning» of a huge amount of virtual capital. This process will be accompanied by the buying-up of real assets by strong «predators» that will absorb the weaker and less smart companies.

2. A further reduction in processors’ margins due to the formation of a new oil «bubble.»

The world price of «black gold» has not reflected the real ratio of demand and supply for a long time. Much of the current $110 per barrel is determined by the size and rate of inflows and outflows of speculative capital. That is why unrealistically high and volatile prices of oil, which yield near-zero margins for the processor, are backed up amid excessive supply and low demand.

3. The gradual death of domestic refineries.

Nowadays none of the Ukrainian refining enterprises can compete with the refineries from Lithuania and Belarus and possess resources for extensive renovation. The presence of loss-making and technologically underdeveloped refineries in the structure of the companies that own fuel assets does not allow them to improve economic performance. Amid rising oil prices and the continuing financial crisis the full cessation of Ukrainian refineries is possible (and is reasonable from an economic point of view).

4. The concentration of retail assets.

The share occupied by the gas stations operating under 15 brands affiliated with the Privat Group is now four times larger than its nearest rival’s. From 30% to 50% of the gas stations in 13 Ukrainian regions are linked by relations of control (not proved by the Antimonopoly Committee, although not less real).

5. The lack of effective governance.

The only program for the development of the fuel industry, drawn up in 1993, has failed. Since then, no strategic documents have been drawn up. The energy strategy of extraction and refining oil was given low priority. The normal operation of the market is blocked by imperfect and unstable legislation, insufficiently thought-out tax and tariff policies (in particular, the rejection of the «higher quality — lower taxes» principle). State control over how owners of the refineries fulfill their obligations is not being implemented. The fuel quality control system has been destroyed. Without accurate information about prices and reserves, the state is unable to quickly and appropriately respond to crises, or forecast and prevent them…

You can read full article in  journal «Terminal: Oil Review» №1 (586) 9 Jan 2012

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