Oil refineries are fully loaded

According to Kommersant, despite the EU embargo on Russian oil products and the price ceiling imposed by Western countries, Russian oil companies increased oil refining in February by 1%, to almost 787,000 tons per day. Oil refining is growing against the backdrop of significant damper payments, and in March, according to experts, this trend will continue. A reduction in refinery utilization may occur in April, when amendments to reduce the size of the damper come into force.

During the 15 days of February, Russian oil companies increased oil refining by about 1% compared to January, to 786.5 thousand tons per day, Kommersant sources familiar with the situation on the market said. The growth in refining correlates with the increase in oil production in February, which Kommersant wrote about on February 16. Russian refineries were able to increase production despite the EU embargo on the import of petroleum products from Russia, which came into force on February 5. At the same time, the price ceiling for Russian oil products introduced by the West came into effect: $100 per barrel for gasoline, diesel fuel and gas oils and $45 per barrel for fuel oil and naphtha.

After the outbreak of hostilities in Ukraine, Russian oil companies, for which Europe has historically been the main export market, began to experience problems with exports, as European traders refused to buy oil and oil products from Russia or reduced the volume of transactions. As a result, most of the export volumes during 2022 were redirected to Asian markets.

The refusal of European buyers from Russian oil and oil products has led to a rise in the cost of logistics, as well as a significant increase in discounts for Russian cargo relative to world prices. However, so far the sanctions have not affected the volume of oil production and refining in Russia.

Last year, Russian oil companies sought to increase the load on their refineries, as they received very substantial compensation for the supply of fuel to the domestic market through the damper mechanism. In total, last year payments for the damper amounted to about 2.2 trillion rubles.

The damper is calculated as part of the difference between the export value of the fuel and the indicative domestic price. If the difference is positive, then the oilmen receive payments from the budget; if it is negative, then, on the contrary, they have to replenish the budget.

In February, damper payments may increase due to the continued weakening of the ruble, which encourages oil companies to increase refining. Probably, this practice will continue in March, but processing may decrease slightly due to the start of scheduled repairs at factories.

At the same time, since March, the Russian authorities are going to reduce oil production in the country by about 5%, or by 500 thousand barrels per day, which may affect the volume of refining. Also, the economy of oil refining will deteriorate significantly from April, when changes to the Tax Code come into force, suggesting a reduction in subsidies for the damper and fixing the Urals discount to Brent when calculating oil taxes. In total, according to the calculations of the Ministry of Finance, the increase in the tax burden on the oil industry will cost the oil industry this year 660 billion rubles, including 85 billion rubles, which the budget will save by reducing the damper.

Preliminary plans for oil refining for March do not indicate a decrease in the supply of raw materials to the refineries of the largest oil companies, but this situation may still change, says Mikhail Turukalov from Commodity Markets Analytics. He notes that the discounts on oil products in Russian ports compared to international quotations are such that the prices for Russian goods are already below the price ceilings set by the West, in connection with this, sanctions restrictions do not interfere with the sea transportation of oil products. Mr. Turukalov believes that the final refining plans for March will depend on the actual reduction in production, as well as on the balance of distribution of March raw materials. Since the damper is expected to be high in March, the expert explains, oil companies have an incentive to load refineries high next month.

Dmitry Kozlov