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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Russian Aviation Jet Fuel Glass - Half-Empty or Half-Full?

An extraordinary situation has developed in Moscow at the capital’s three airports.  Managers have suddenly discovered that their facilities are swiftly running out of aviation fuel, an extraordinary situation in a country which is currently tied with Saudi Arabia as the world’s leading oil exporter.
 
On Friday Interfax reported that Sheremetyevo airport, the capital’s main terminal, had enough fuel to last for three days. Sheremetyevo’s press service announced, "We are monitoring the situation and have on hand stocks of jet fuel at the airport for three days." 
 
Vnukovo airport, Moscow’s VIP facility, has enough fuel for two days. Domodedovo is in the best situation, having fuel stocks twice that of Sheremetyevo. The government regards the situation as sufficiently serious that the Russian Federation’s Transport Ministry’s Federal Air Transport Agency Rosaviatsia has requested the Federal State Reserve Agency Rosrezerv to provide the metropolitan airports with 180,000 tons of backup reserve fuel along with contacting oil companies with a request to increase the airports’ supply of fuel by 10 percent.
 
The finger pointing has already started. What is clear at this point however is that even the government is unsure exactly what caused the shortages. Prime Minister Vladimir Putin’s spokesman Dmitrii Peskov said, "We need to find out whether there are problems with supplies, and if so, what are their causes."
 
According to Rosaviatsia director Andrei Pryanichnikov, the interim fuel shortages were caused by the fact that domestic refineries diverted increasing amounts of oil to more diesel fuel production and he told reporters that the reduction in fuel supplies in Moscow airports was due to the subsequent reduction in jet fuel production by the refineries.
 
Or perhaps it was the “invisible hand” of the free market, guided by speculators.
 
On Friday a source at the Federal Air Transport Agency, speaking on condition of anonymity said, "Last week, the aircraft fuel stock exchanges offered just five thousand tons of fuel for sale with the demand of about 270 thousand tons. The average weekly trading volume of aviation fuel is 30-70 thousand tons."  Aviation sources in Moscow said that Moscow’s hub airports are experiencing problems with the supply of aviation fuel due to the fact that they have been undersupplied for a second week.
 
The Russian media fingered another possible culprit producing the fuel shortages in the civil aviation market, the Defense Ministry, which reportedly recently made a large aviation fuel order. The Defense Ministry immediately countered that it had nothing to do with the fuel shortages at Moscow’s airports, with the Defense Ministry’s press office tartly noting that the current volume of weekly consumption of military airfields surrounding Moscow, including Chkalovsky and Kubinka, is ten times less than Moscow’s civil aviation airports. In defense of the Russian media speculation however it should be noted that Russia’s Ministry of Defense currently accounts for 10-12 percent of jet fuel produced and consumed in Russia.
 
Support for the Ministry of Defense’s claims came from on unexpected source, Deputy Minister of Energy Sergei Kudryashov, who dismissed media speculation claiming a "military footprint" in the fuel shortages, stating instead that the airports’ fuel problems are caused by a failure in rail shipments, which overlapped with the peak flight demand at the end of August. Russian pipeline monopoly Transneft vice-president Mikhail Barkov supported Kudryashov’s assertions that the fuel problems were caused by railway inefficiency.
 
Outside of Moscow a similar situation seems to be brewing in the Siberian town of Ekaterinburg, where Rosaviatsia warned that a similar shortage of jet fuel was occurring at the city’s Koltsovo airport, where of the 14,000 thousand tons of aviation fuel contracted for the current month, only six thousand tons had been received.
 
The Russian press will doubtless be abuzz with more material on this “skandal” in the weeks to come. For a nation with the volume of energy production of Russia, the incident is an embarrassing reminder of the fact that Russia’s economy remains an uneasy amalgam of Soviet-era practices and the free market. What is certain however is that if the airport operators and fuel companies are unable to resolve the problems in a swift and decisive manner, they can expect more government interference. Russian Federation President Dmitrii Medvedev last week visited Tajikistan, and it’s a long walk home to Vnukovo airport.

By. John C.K. Daly of OilPrice.com




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