The refineries did not notice the sanctions – Newspaper Kommersant No. 38 (7483) dated 03/06/2023

Oil companies in February increased the loading of their refineries, despite the introduction of an EU embargo on imports of Russian oil products and a price ceiling for them. Thus, the average daily refining volume in February increased by 0.2% compared to January. In the context of sanctions restrictions on the export of oil and petroleum products, companies seek to redirect commodity flows to Asia and increase supplies to the domestic market. However, in March, oil companies, by decision of the authorities, will be required to reduce oil production, which may affect the loading of refineries.

Oil refining in Russia in February increased by 0.2% compared to January, to about 779 thousand tons per day, Kommersant’s interlocutors in the industry say. At the same time, the growth rate of refining volumes decreased compared to mid-February (see Kommersant of February 20). In February, oil companies continued to increase oil production, as a result of which it almost reached the level of February 2022 – about 11 million barrels per day.

From February 5, the EU and the G7 countries began to apply a price ceiling for Russian oil products, but so far it has not affected the volume of oil refining in Russia. The ceiling provides for two price limits: $100 per barrel for gasoline and diesel fuel and $45 per barrel for fuel oil and naphtha. From December 5, 2022, the ceiling price for oil ($60 per barrel) was also introduced. The introduction of a price ceiling did not lead to a decrease in oil production in Russia, as companies were able to restructure the logistics of supplies to Asia. However, at the same time, the Urals discount to Brent increased, which led to a fall in budget revenues.

The Russian authorities decided to support Urals quotes by reducing oil production in March by 500 thousand barrels per day compared to January. Despite these plans, in February, according to Kommersant, oil companies continued to increase the production of oil and oil products. At the same time, on February 21, Deputy Prime Minister Alexander Novak announced a decrease in oil refining in February. “Oil refining is a few percent lower now (than in January), but we’ll see how the situation develops there,” Interfax quoted the official as saying.

In addition to reducing oil production, an important factor for future refining volumes will be the reduction of budget subsidies. Now the budget pays compensation to refineries for the supply of fuel to the domestic market in the form of a fuel damper. Last year, oil companies received a record 2.2 trillion rubles. due to damper payments, but since April, the Ministry of Finance decided to reduce these subsidies by changing the damper formula. In addition, oil refining may be somewhat reduced in March due to the start of seasonal repairs at refineries.

According to preliminary data, the average daily export of oil products by sea in February decreased by 7% compared to the previous month, to 2.36 million barrels per day, said Sergei Kondratiev from the Institute of Energy and Finance. “These data are based on tanker tracking data and will most likely be revised upwards later, since so far not all tankers that have left Russian ports are taken into account,” he says, adding that the export of oil products in February will most likely still turn out to be below January levels.

According to Mr. Kondratiev, in March, the average daily refining volume at Russian refineries will decrease by a maximum of 6%, since March is traditionally a month when activity falls, and this year, production cuts and overstocking of the diesel fuel market may have an additional negative impact. The expert does not exclude at the same time that the decline in production in March may be less than the announced 0.5 million barrels per day due to stable oil exports and high domestic demand: much will depend on the determination of the Ministry of Energy in meeting the stated goals.

Dmitry Kozlov