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. Last Updated: 07/27/2016

Government Out to Curb Oil Exports

Following sporadic gasoline shortages in the regions and strong price rises this week, the government is moving to try and smother the domestic market with gasoline by clamping down on exports.

After President Boris Yeltsin discussed the matter with Prime Minister Sergei Stepashin early Thursday, a government meeting focused on the looming possibility of fuel shortages, Fuel and Energy Minister Viktor Kalyuzhny said.

As world oil prices continue to boom, the government believes its only hope for avoiding further gasoline shortages and possible hefty price hikes is to order crude producers to send more oil to Russian refineries.

The authorities cannot control retail sales or the private traders who are raising gasoline prices so they have to try and sate the domestic market with sufficient oil supplies, Kalyuzhny said at a news briefing.

Some regions such as Rostov or Samara have already faced gasoline shortages and prices in those areas have jumped by 30 percent to 40 percent over the past few days, Vremya MN reported.

Russian producers can get twice as much for a barrel of crude oil from the export market as they can from local refineries. Whereas domestic refineries are buying crude for $7.20 a barrel, Urals blend was quoted at $18.40 a barrel in Northwest Europe on Wednesday, the United Financial Group said. Urals blend is the benchmark for Russian crude.

And foreign buyers pay in hard currency, making their trade even more enticing for Russian producers.

The scattered fuel shortages have been partially the result of a surge in exports of crude oil and oil products, but other factors have played a role as well, Kalyuzhny said.

Drivers' demand for high octane gasoline has increased with the summer season. Meanwhile, the petrochemicals industry has increased output by roughly 15 percent and is therefore consuming greater volumes of low octane gasoline, he said.

The Fuel and Energy Ministry has acted to raise crude deliveries to domestic refineries in order to eliminate the fuel crisis by August, Kalyuzhny said.

The oil companies are supposed to supply about 43 million tons of oil for processing in the third quarter, he said earlier. This would be an increase from the average quarterly deliveries to refineries so far this year.

But despite his pledges, less than half the scheduled amount was delivered to the refineries in the first two weeks of July. The refineries received a bare 6.2 million tons of crude, well short of the 14.3 million tons they were supposed to get, according to ministry data.

Stepashin, accompanied by Fuel and Energy Ministry officials, will meet next Thursday with oil company bosses to discuss extra ways to make the domestic market more attractive for oil producers.

Tax exemptions for operators on the domestic market are likely to be on the agenda, Kalyuzhny said.

A suggested increase in the export tax for crude oil from 5 euros per ton to 7.5 euros per ton is likely to be dropped, and Russia will cut fourth quarter exports by 2 million tons, he added. Russia exported 28.8 million tons in the second quarter.

The government will also act to cut off export loopholes such as shipments to refineries in the Commonwealth of Independent States ? which are meant to come back to Russia as refined products but are often exported to Europe ? and rail-borne exports.


Market Prices

Wholesale Fuel Prices, rubles/ton

Refinery Gasoline A-92* Diesel

June 10 July 15 June 10 July 15

Moscow 4,200 4,200 2,800 3,050

Kirishi 3,625 4,200 2,200 2,233

Ryazan 2,950 4,200 2,435 3,200

Norsi 3,807 4,176 2,676 2,676

Volgograd 3,400 4,000 2,700 3,100

Kuibyshev 4,100 4,890 3,200 3,800

* unleaded

Source: Kortes petroleum information agency