Russian oil refining rises as U.S. sanctions target crude
- Russian firms hope to export more products
- Russia has wider pool of fuel buyers than crude
- Tankers under sanctions mostly shipped crude
- Russian diesel sells below G7 price cap, easier to export
Russian refineries are processing more crude oil in the hope of boosting fuel exports after new U.S. sanctions on Russian tankers and traders made exports of unprocessed crude more difficult, two industry sources said and data showed.
Russia has been trying to adapt to Western sanctions imposed in response to the invasion of Ukraine since 2022 by buying new fleet, re-routing oil exports to Asia from Europe and finding new fuel customers in Africa and Latin America.
The latest U.S. sanctions imposed on the Russian oil industry in January have made crude exports to key Asian customers in India and China more costly and complex.
Russian refining runs rose by 2%, or by 108,000 bbl, to 754,800 metric tpd on Jan 15–19 from the first week of the year, according to the sources. It was also up 1.2% from the average for January 2024.
Russia has slightly wider options for fuel exports compared with crude oil thanks to a G7 price cap. Under the cap, Moscow can use Western fleet and shipping services if it sells crude at prices below $60/bbl and diesel at below $100/bbl. The price cap of $60/bbl is lower than the current price of Russia's flagship Urals blend of around $70/bbl.
Traders say for the time being the price cap imposed on products that trade at a premium to crude, principally diesel - which stands at $100/bbl - still leaves room for a profit. Russian diesel currently trades at around $75/bbl. They also note vessel availability is higher for fuel than for crude.
Vessels. Russia's efforts to boost refining are complicated by Ukrainian drone attacks and the overheating economy.
Top Russian oil producer Rosneft has also said refinery modernization plans may have to be abandoned.
Still, the sources said Russian refineries were producing as much as they could betting on higher chances of finding vessels to export fuel after crude tankers had been sanctioned. "We have to utilize oil processing as much as we can in order to use (the sanctioned) oil," an industry source said.
The sanctions, announced by the Biden administration in early January just before new U.S. President Donald Trump took office, targeted some 180 tankers involved in transporting mostly Russian oil and much lower volumes of fuel.
In 2024, those tankers carried around 1.5 MMbpd of crude oil and just 200,000 bpd of refined products, according to analysis from Morgan Stanley.
The sanctions also targeted Russian oil firms Surgutneftegaz and Gazprom Neft.
Surgutneftegaz's Kirishi oil refinery in Western Russia raised oil processing by almost 8% on Jan 1–21 from Dec. 1–27, according to one of the sources.
Russia is one of the world's largest seaborne exporters of diesel and fuel oil. Western officials have said they do not seek to fully stop Russian exports but want to reduce revenues so Moscow stops the war in Ukraine.
Comments