In July 2012, primary oil refining in Russia reached an absolute record at 23.6 million tons according to Rosstat. The growth rate of production in the sector also increased compared to last year, from 3.6 percent in June to 4.5 percent in July.

The volume of oil processing from January to July of this year increased compared to the same period of last year by four percent to 155 million tons.

According to the Ministry of Energy, the volume of primary crude oil processing in Russia in July 2012 was 23.3 million tons (103.5 percent compared to July of last year), slightly less than what was reported by Rosstat. Output growth in the industry is attributable to strong domestic demand and a reduction in oil prices on the domestic and foreign markets. The percentage of oil extracted in Russia that is then refined went up in January-July 2012 to 51.9 percent from 50.5 percent over the corresponding period of 2011.

The dynamics of petroleum product refining in January-July 2012 was different for each specific type of product. The most significant increase compared to the same period of the previous year occurred in the production of motor gasoline (+3.1 percent), which was due to increased demand for that type of petroleum product on the domestic market. Also, during the reporting period, there was an increase of production of fuel oil (+1.9 percent compared to January-July 2011).

At the same time, the production of diesel fuel in the last seven months of this year decreased compared to the figures for the similar period of the previous year by four percent. In January-July 2012, according to Rosstat, refineries delivered to the domestic market some 19.6 million tons of gasoline, which is 108.9 percent of the result for the corresponding period in 2011, 20.1 million tons of diesel fuel, which is 98.0 percent of the figure for 2011, and 10.7 million tons of fuel oil, which represents 109.2 percent of the performance totals for the same months of last year. The depth of crude oil processing in January-July 2012 increased by 0.6 percent against the same period in 2011 and amounted to 71.3 percent.

However, oil companies seem to be unable to meet the targets set out in October 2011 quadripartite agreements to upgrade capacities in refining. The current technical regulations were amended, prolonging the use in Russia of gasoline and diesel of the Euro-2 class to December 31, 2012, Euro-3 to December 31, 2014, and Euro-4 until December 31, 2015. The government made concessions to oil companies, which did not have time to upgrade their refining capacity up to the required level.

In August 2012, the Federal Antimonopoly Service (FAS), Rostekhnadzor, and Rosstandart agreed on the changes in the agreement with Surgutneftegaz to upgrade its refining facilities. Agencies agreed to the deferment in the commissioning of the isomerization and catalytic unit from 2015 to 2016, a hydrocracking unit from 2012 to 2013, and a hydro-distilling unit from 2014 to 2015. In addition, such requests to the government to extend compliance terms have come from Rosneft, TNK-BP, Gazprom Neft, LUKOIL, Bashneft, and a number of other oil companies and refineries. They are asking to push off mandated dates for the launch of new facilities on the average for one year.

In late August, FAS officially acknowledged that oil companies do not manage in time to upgrade their refining capacity. However, the Service said it would still insist that companies ensure the presence on the market of sufficient volume of high-quality gasoline. Those lagging behind the targets have been offered three options – to buy gasoline in Belarus, to have it delivered from abroad under swap schemes in exchange for diesel fuel, or to negotiate an increase in the processing capacities of already upgraded refinery facilities of other companies. FAS also sees no reason to delay the implementation of the ban on Euro-2 class fuel, which is due to come into force in 2013.

The export of oil products from Russia in January-June of this year exceeded last year’s level by 13.6 percent and amounted to 67.7 million tons in export growth recorded in the categories of diesel fuel and fuel oil. At the same time, the export of motor gasoline decreased compared to last year’s level by 9.5 percent in response to the introduction in May 2011 of 90 percent export duty of the crude oil.

According to the Ministry of Economic Development, in January-July 2012 high growth rates were observed in oil product processing at the refineries of Gazprom, whose output was 112.7 percent compared to the result from January-July 2011, Tatneft, which witnessed a 109.1 percent increase, the Khabarovsk refinery, with this year’s results reaching 104.2 percent of last year’s figures, Slavneft, with a 105.8 percent increase, and Gazprom Neft, with a 102.9 percent increase. Still, there was a decrease in crude oil refining against the same period of last year at LUKOIL’s refinery, which had production results decrease by 3.2 percent, Rosneft, whose refining output dropped 0.7 percent, TNK-BP, with production plummeting some 6.3 percent, Gazprom Salavat Petrochemical, where output fell 6.0 percent, and Bashneft, whose production totals declined by 3.1 percent.

Rosneft still remains the leader in refining, with 29.3 million tons of product produced. LUKOIL takes the second place with some 25.7 million tons. Gazprom Neft produced 18.6 million tons, and TNK-BP 13.9 million tons. Last among majors, Surgutneftegas produced 12.5 million tons. Altogether, these producers account for 64.5 percent of the total volume of oil refining in the country.

Domestic prices of petroleum products

A growth of prices for all types of oil products took place on the domestic market of the Russian Federation in July 2012, and the price of diesel fuel showed the maximum rate of increase in the annual comparison. At the same time, on the consumer market there was a decline in prices for diesel fuel compared to June of this year, while consumer prices for gasoline remained at the previous month’s levels.

Experts point out that this year the price of fuel has stabilized in Russia, but that this situation will not last for an extended period of time. As such, LUKOIL in August reported an increase in retail gasoline prices, a measure taken for the first time since April. Experts predict that after LUKOIL, other oil companies would raise the price of gasoline and diesel fuel.

Market price increases explain world prices for oil, as well as seasonal increases in wholesale prices. The average wholesale price of gasoline normal-80 based on the results of the working week from 20 to 24 August increased by 0.6 percent to 27.7 thousand roubles per ton. The price of regular-92 increased by 2.6 percent to 30.04 thousand roubles per ton. Premium-95 rose by 3.3 percent, to 32,714 roubles per ton.

Retail fuel prices, according to the agency, also increased. Thus, the price of gasoline, normal-80 was up four kopecks and reached 25.04 roubles per liter. The price of regular-92 was fixed at 26.76 pounds (up by four kopecks). The price of premium-95 was 28.92 pounds (increase by five kopecks).

The financial situation of the industry

The net financial result for companies in oil refining sector in January-May 2012 decreased compared to the same period of last year by 34.8 percent to 233.6 billion roubles. Lower profits in the industry may be due to the increased costs of companies with stagnant revenues. However, the share of profitable companies in the sector in January-May 2012 increased to 83.3 percent, exceeding the average rate of 68.6 percent for all sectors of the economy. This industrial indicator already exceeded pre-crisis levels of 2007-2008.