Russian oil refining increases as US sanctions disrupt crude exports

Russian refineries are processing more crude oil in the hope of boosting fuel exports after new US 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 US 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 per cent, or by 108,000 barrels, to 754,800 metric tons a day on Jan 15-19 from the first week of the year, according to the sources. 

It was also up 1.2 per cent from the average for January 2024. 

The sources asked not be named because they were not authorised to speak publicly. 

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 per barrel and diesel at below $100 per barrel. 

The price cap of $60 per barrel is lower than the current price of Russia's flagship Urals blend of around $70. 

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 per barrel - still leaves room for a profit. Russian diesel currently trades at around $75 per barrel. 

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 modernisation 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 utilise 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 US 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 million barrels of crude oil per day and just 200,000 barrels per day 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 per cent 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.  (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)