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Russian oil exports sink as refiners process more

07.07.2014  | 

“Russian refinery crude intake was growing strongly in the first half of the year as the Spring refining maintenance was very mild,” said David Wech, managing director at JBC Energy.

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By JAKE RUDNITSKY
Bloomberg

Russian crude oil exports declined to the lowest level in at least six years as the nation’s refiners carried out less maintenance, boosting fuels output.

Crude shipments dropped 5.3% to 4.95 million bpd in the six months to June from a year earlier, according to CDU-TEK, part of the Energy Ministry. Production rose 1% in the same period.

Russian refiners including OAO Rosneft reduced maintenance programs in the first half of the year, halting 15 percent less capacity than a year ago. That enabled them to process more crude as lower export duties on fuel oil and diesel incentivize the output of those products, according to KBC Energy Economics and UralSib Financial Corp., an investment bank.

“Russian refinery crude intake was growing strongly in the first half of the year as the Spring refining maintenance was very mild,” David Wech, managing director at JBC Energy, said July 3 in an e-mail. “This explains the decline in crude oil exports.”

Fuel oil production gained 5.8% in the year to May, reaching a five-year high despite billions of dollars in investment for government-mandated upgrades intended to boost yields of premium products such as diesel and gasoline. Fuel oil, a more polluting fuel used in shipping and power production, accounted for 39% of refinery output, ministry data show, compared with less 10% in Germany.

“Fuel oil production is increasing as the planned upgrades are taking longer than planned,” said Ehsan Ul-Haq, senior market consultant at KBC.

Export Duties

Russia plans to increase fuel oil export duties, aiming to reach parity with the crude levy by 2015, as it seeks to encourage oil companies to upgrade Soviet-era facilities. The government may not meet the 2015 deadline, Finance Minister Anton Siluanov said last month.

“Small refineries are driving the increase in primary refining and this trend will only stop when the government raises the fuel oil export duty to a prohibitive level,” Alexei Kokin, an oil and gas analyst at UralSib in Moscow, said July 2 by phone.

Most crude exports this month are taxed at $385.20/ton, or about $52.55/bbl, compared to $254.20/ton for fuel oil, according to Finance Ministry pricing data. Fuel oil duties were raised relative to crude in 2011.

Refiners will carry out more work this quarter, when a daily average of 512,000 bbl will halt, up from 279,000 bbl in the first six months of 2014, ministry data show.

Fuel oil output rose to 32.7 million tons in the five months to May, the highest since at least 2010, data on the ministry website show. Jet fuel output rose by 14%, outpacing diesel at 11% in the five months to May, the last month for which ministry figures are available.

The crude export figures are at the lowest since 2008 when Bloomberg started collecting the data. They include transit volumes from former Soviet Republics, with the exception of Kazakh exports via the Caspian Pipeline Consortium and by rail.



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