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. Last Updated: 07/27/2016

Kremlin Gives Nod To Excise Duty Cuts

The proposed cut is one in several measures to support Russia's energy sector.

The Russian government approved a bill cutting excise duties on oil and gas condensate production Thursday, in a move designed to support the key energy sector in its bid to overcome the impact of low world oil prices.

Russian news agencies reported that the government had approved a bill which would cut the rate of excise duties until Jan. 1, 1999. The bill still needs to be passed by the State Duma, or lower house of parliament, before becoming law.

No details were given of when the bill will take effect, if passed, or by how much the duty will be cut.

It currently stands at 55 rubles ($9.10) per metric ton, and a senior government source earlier said that Russia was considering cutting it to 45 rubles.

Prime Minister Sergei Kiriyenko had told the Duma in April that the government would sign an order cutting duties during an address to muster deputies' support in his successful bid to be approved in his post.

The proposed cut is one of a number of measures taken by the government to support Russia's vital energy sector, threatened by weak international prices for both oil and gas.

Benchmark June Brent futures on London's International Petroleum Exchange closed Wednesday at $14.49 per barrel, $4.81 lower than last year's average price of $19.30 per barrel.

But the price for Urals blend crude, Russia's main export grade, is far below this.

Physical North Sea Brent, against which Urals trades, was traded Wednesday at 62 cents below June Brent futures.

And a Urals cargo was rumored as having been traded Wednesday at a discount of $1.30 a barrel to Dated Brent -- giving a notional absolute Urals value of just $12.50 to $12.60 a barrel.

The price slump has hit Russia's producers hard. They have been pleading for tax breaks to support their industry since the beginning of the year.

In January, the heads of seven of the country's largest oil companies wrote to Viktor Chernomyrdin, then prime minister, asking for excise duties to be cut back to 25 rubles a ton.

Given that Russia produces around 300 million tons a year (6.0 million barrels per day), this would have cost the budget -- but saved producers -- some nine billion rubles, or $1.5 billion, in a full year.

Russia has already introduced other measures to prop up the industry.

Starting April 1, an oil transportation cost of 3.8 rubles per ton per thousand kilometers was scrapped by government order.

And a separate fixed tariff of $3 per ton on oil for export was halved by Russia's Federal Energy Commission to $1.50 per ton for the second quarter only.

At the same time, Russia bowed to pressure from a large group of oil producing countries, which had pledged to cut their combined output with the aim of supporting sagging oil prices.

Russia eventually agreed to cut production by 1 percent, or 61,000 barrels per day, as a contribution to the international effort.