Government Cuts Oil Export Duties

BloombergAn oil firm source said the cut was "the minimum reduction, and it does not significantly raise the appeal of exports."
The government cut oil export duties Saturday, responding to the concerns of top producers who feared making losses on overseas shipments.

The cut was far less than oil companies had wanted, however, and it remained unclear whether they would proceed with November export plans or redirect their oil to the domestic market to avoid the duty.

"It was the minimum reduction, and it does not significantly raise the appeal of exports," a source at one of the country's oil companies said.

The duty was set at $287 per ton from Nov. 1, down from $372.20, news agencies reported. That was the level favored by the Finance Ministry, sources in the Finance Ministry and the Economic Development Ministry said Friday.

The Finance Ministry, led by fiscal hawks who are counting on income from Russia's oil resources to help stave off the effects of the global financial crisis, calculated its proposal to protect its budget requirements, the sources said.

The country's senior energy official, Deputy Prime Minister Igor Sechin, was backing a steeper cut to $195.20 per ton, with the support of the oil industry lobby, the sources said.

Prime Minister Vladimir Putin ordered proposals for a new formula for crude oil export tariffs, based on market prices, to be prepared by Dec. 1, news agencies said.

The country has said it would not join OPEC efforts to regulate prices by cutting production but has said it would like closer ties with OPEC and more influence on prices.

OPEC decided late last month to cut around 5 percent of world oil supply to put a floor under prices. The cut has had a limited impact as concerns about global recession continue to exert pressure on prices.

At the October duty level, industry sources said exports appeared to be creating losses after oil's fall from record- high prices of over $140 per barrel in July.

Russia's Urals blend crude was trading around $56.84 per barrel Tuesday, including the cost of delivering the oil to Mediterranean ports.

Trade sources said Saturday that Russia's largest oil companies were preparing to cut at least half a million tons from the 11.5-million-ton November seaborne export plan if the government failed to trim duty enough.

"Rosneft and TNK-BP have canceled 200,000 tonners, and LUKoil has canceled all its Primorsk volumes for the first 10 days of November," a trade source said Saturday.

Pipeline monopoly Transneft's export program showed that TNK-BP was planning to export 300,000 tons, Rosneft 700,000 tons and LUKoil 300,000 tons from the Baltic port of Primorsk in the first 10 days of November.

From the Black Sea port of Novorossiisk, TNK-BP was to export 85,000 tons, Rosneft 140,000 tons and LUKoil 160,000 tons.

The oil companies were not immediately available for comment Saturday.

Trade sources said last week that oil for delivery to the domestic market in November traded as low as 2,000 rubles ($75.36) per ton, or around $10.30 per barrel, as oil companies gave up hope for a duty cut in early November.

Domestic prices are based on export netbacks, or the return the oil companies receive on a barrel of oil shipped to international markets.