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. Last Updated: 07/27/2016

Russian Oil Majors Raise Output From Refineries

LONDON -- Shipments from the former Soviet Union of gasoline, naphtha and other light products are set to keep rising as Russian oil companies upgrade their refineries to tap into surging global demand for the high-value fuels and to diversify their assets, analysts said.

Even as crude oil prices surged to record levels, refiners in Russia, as well as neighboring countries such as Bulgaria and Belarus, have been building new units to boost output of gasoline and trim production of lower-value products such as fuel oil.

"The trend will continue," said Dmitry Mangilev, an oil analyst at Prospect Investment. "Oil prices can go down as well as up. With investment in downstream assets, you can hedge the risk."

Urals crude prices have risen more than 40 percent in the past year. Shipments of light products from the former Soviet Union rose 37 percent in July from the previous year to 485,000 barrels per day, Geneva-based consulting firm Petrologistics said last week.

A high volume of exports of low-octane A-76 gasoline cargoes from the Baltic countries formed part of a glut of motor fuel imports into the United States in July, traders said.

Fuel oil shipments, by contrast, rose by just 4.6 percent last month versus July 2003. The high-sulfur fuel oil discount to Urals crude has more than tripled in the past year, dragging down refinery profitability across Europe.

Transport bottlenecks stand in the way of growth in Russian crude and oil products exports. But the profitability of selling light products to world markets means refiners will boost those shipments at the expense of fuel oil.

The Economic Development and Trade Ministry expects gasoline output to rise 15 percent from this year to 34.4 million tons in 2007, and fuel oil production to drop 6 percent to 50 million tons. Russia exports half its refined products.

"Export capacity is still tight, so they'll export the highest-value products they have," said Andreas Wild, oil analyst at brokerage BrokerCreditService.

Light products exports are rising as oil majors like LUKoil, TNK-BP, and Slavneft invest in refinery upgrades aimed at boosting production of gasoline and other high-value products.

LUKoil plans to start up a new hydrocracker at its Perm refinery in September, Interfax reported earlier this year. In April, the oil major ramped up output at its Burgas, Bulgaria, refinery after maintenance and upgrade work. It also plans to restart its Petrotel refinery in Romania next month.

"Russian companies are investing billions at the moment in a clear strategy to export more," Wild said. "They're investing in plants closer to export markets. Their first step has been to buy downstream assets in Eastern Europe."

Slavneft, which owns a 42.5 percent stake in the Mozyr refinery in Belarus, switched on a new gasoline-making fluid catalytic cracker at the plant earlier this year. Slavneft's refinery in Yaroslavl began producing Eurograde gasoline in May for export to the European market.

"Exporters are having to adjust to demand from Europe," said Anna Butenko, an analyst at Alfa Bank. "Gradually, internally, there will also be a shift to higher-quality products, but that will take time."