Council on Pricing for Petroleum Products State Purchases

The working council in the State Reserve Agency regarding the pricing policy for state purchases of oil and petroleum products was held on November 17.

Specifically, participants have debated about possibilities of purchase and sale of petroleum products using commodity-exchange instruments like forward and futures contracts for this purposes; it could allow fixing the purchase prices for following hedging of financial risks.

The council was attended by representatives of the Ministry for Infrastructure, Ukrainian Stock Exchange and Ukrainian Energy Exchange, USAID programme of the US-government and Ukrainian Oil & Gas Association. It should be mentioned that our foreign partners particularly provide us with assistance in consideration of issues related to the state purchases of petroleum products from the point of view of market mechanisms assuring certain guarantees to fuel market players.

Currently, the State Reserve Agency plans have in so-called “tickets” up to 10~12% of minimum reserves, i.e. have a possibility to purchase fuel, when it is necessary, and in the future increase this rate to 70%. Long-term futures contracts could be useful for this purpose.

The Ukrainian Oil & Gas Association supports these plans, since this pricing policy is transparent and understandable for all market participants, and it might assist forming the economically feasible fuel prices. Our proposal is to use quotations of the international agencies Platts and Argus as the benchmark for updating and sale of the reserve fuel.