Vedomosti reports that Russian oil companies decreased crude export to ‘far abroad’ countries 2% in 1H13, despite an increase in production for the period. At the same time, the companies started to send more crude to domestic refineries (throughput grew 2.4% YoY in 1H13), where capacity is gradually growing as a result of new launches and modernisation.
Refining oil products in Russia and then exporting them is more profitable than exporting crude due to the difference in custom duties (the export duty on oil products is calculated as 66% of crude except for gasoline and naphtha). We do not expect a substantial increase in crude refining capacities, though, given that the majority of upgrades are aimed at increasing the secondary refining processes, which would boost the output of light products (gasoline, jet, diesel). Given the export netback pricing mechanism for crude, Russian oils monitor the markets for crude, choosing those destinations which generate the highest profitability, which we view as a common course of business. We do not expect any market reaction to the news.