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. Last Updated: 07/27/2016

Fuel Oil Quotas Nixed as Crude Cut Kicks In

Russia has decided not to set fuel oil export quotas for January, technically allowing oil firms to ship abroad their entire fuel oil output and compensate for a drop in crude exports promised to OPEC.

"Currently there are no export restrictions on fuel oil. But we have to watch temperatures and our domestic fuel oil stocks closely," an Energy Ministry official said Friday.

Russia, the world's second-largest oil exporter, pledged to cut its booming oil exports from January 2002 by around 5 percent or 150,000 barrels per day to help the Organization of the Petroleum Exporting Countries support oil prices.

Analysts have said Russia might let oil firms ship more oil products to compensate them for the loss of crude exports. However, Energy Ministry officials and traders said another reason for not setting fuel oil export quotas for January was the extremely difficult situation at Russian refineries, overloaded with fuel oil stocks. Russian oil output continued to grow in the fourth quarter of 2001.

However, its main export ports were hit by storms although refineries were operating at full capacity. Fuel oil export quotas were set at about 20 percent to 25 percent throughout October to December 2001. However, domestic demand was lower than expected and refineries mainly stored the output.

Traders said it was unlikely Russian oil firms would use the opportunity to export their entire fuel oil output and stocks in January. "Even if current domestic fuel oil prices are low and still very attractive abroad, as Europe is short of fuel oil, there is no transport capacity to send it all abroad," a senior Russian trader said.

Russia's decision is likely to boost seaborne exports out of the Baltic and Black Sea by a modest 10 percent to 15 percent, traders and brokers said Friday.

Total Russian seaborne exports flowing out of the Baltic, the data for which is hotly contested due to difficulty in tracking deliveries, is put at around 1.2 million tons per month in the winter months, according to one major player.

This figure is arrived at by taking out Belarus' production, which is estimated at around 400,000 tons per month.

Dealers said the floodgates were unlikely to open for two main reasons. The first being logistical.

"You only have four ports [in the Baltics] and x number of trains -- and they're always full. ... In any case, they will never export more than they do for their summer program," said one Russian trading specialist.

The second reason is political. Russian oil companies are supposed to satisfy domestic demand before concentrating on lucrative export sales.

Fuel oil export quotas were set at about 20 percent to 25 percent through October to December 2001. But lower domestic demand has led to ballooning stocks.

Nevertheless, one Russian specialist believes that the total number of extra barrels flowing from Russia and the Black Sea will not top 400,000 to 500,000 tons in January, despite the stockpile.

"That's the total difference if they whacked it out at full pelt -- the incremental absolute max they could go for."

European dealers well aquainted with a multiplicity of sometimes ineffective oil product edicts out of Moscow in recent years were adopting a wait-and-see approach.

"I don't know how many times I've heard decrees from Moscow say one thing or another and nothing changes – I'd take everything with a pinch of salt," one said. "Tracking the last five years you see that the exports are pretty much standard and average with very few blips here and there. The blips only occur when bid demand comes up internally and then it affects the export figure by about 20 percent."

The northwest European fuel oil market appeared to shrug off the bearish news Friday.

Russia exported 32.6 million tons of fuel oil in January-November 2001, up from 26.7 million tons in the same period of 2000. Oil companies have asked the government to cut fuel oil export tariffs along with export quotas.

A government panel decided last week that fuel oil export tariffs would remain unchanged at 20 euros per ton, but lowered gasoline and gas oil export tariffs to 25 euros from 39 euros per ton.