Russian Fuel Prices Soar as Drone Attacks Curb Refinery Output

Russian gasoline and diesel prices surged further, as continued Ukrainian drone attacks forced the country’s oil refineries to reduce or halt production, deepening a domestic supply crunch.

(Bloomberg) — Russian gasoline and diesel prices surged further, as continued Ukrainian drone attacks forced the country’s oil refineries to reduce or halt production, deepening a domestic supply crunch. Average retail prices for gasoline increased 2.3% week-on-week to 75.84 rubles ($0.98) a liter in the July 7-13 period, according to data published by Russia’s Federal Statistics Service late Wednesday. The cost of diesel at the pump advanced 3.2% to 91.21 rubles a liter, the data show.

Russia has seen an unprecedented drop in crude-processing rates to the lowest in more than 21 years due to near-daily Ukrainian strikes on fuel-producing plants. Combined with high seasonal demand for refined products, that has prompted the government to ban almost all exports of diesel, gasoline and jet fuel. Regional authorities across the country have also introduced fuel rationing to address panic buying.

Pressure is mounting for the Kremlin, which is preparing for parliamentary elections in September, as well as for the central bank, which earlier flagged an increase in inflation risks from lower fuel production and warned of a possible pause in its easing cycle. The Bank of Russia will meet to decide on the key rate next week. So far this year, retail gasoline and diesel prices have risen 16.4% and 18% respectively, compared with a 4.64% gain in inflation, according to Federal Statistics Service data.

Average gasoline prices in Russia’s capital reached 72.84 rubles per liter, and 70.75 rubles per liter in President Vladimir Putin’s home city of St. Petersburg, the data show. Rising fuel prices also have “a significant impact” on the prices of other goods and services, the central bank said in its monthly report on economic trends late Wednesday. The extent of possible secondary effects largely depends on how long the supply shock on the fuel market lasts, it added.

“A blistering wave of Ukrainian attacks” has affected more than half of Russia’s refining capacity since the start of May, according to the International Energy Agency, which estimates Russian plants processed 3.8 million barrels a day in June, or almost a third less than a year earlier. Since May, Ukrainian forces have carried out more than 40 attacks on Russia’s fuel-producing facilities, hitting at least 23 out of 34 large refineries, mostly linked to the nation’s major oil producers, according to a Bloomberg tally of public statements from both countries.