By Andrey Filippov
Russian refineries are increasing their crude oil processing activities in an effort to enhance fuel exports, following the implementation of new U.S. sanctions on Russian tankers and traders, which have complicated the export of unrefined crude, according to two industry sources and supporting data.
Since the onset of Western sanctions in response to the Ukraine invasion in 2022, Russia has been actively seeking to adjust by acquiring a new fleet, redirecting oil exports from Europe to Asia, and establishing new fuel markets in Africa and Latin America. The most recent U.S. sanctions, enacted in January, have rendered crude exports to significant Asian markets, such as India and China, more expensive and intricate.
According to sources, Russian refining operations increased by 2 percent, equivalent to 108,000 barrels, reaching a daily rate of 754,800 metric tons during the period of January 15-19, compared to the first week of the year. This figure also represents a rise of 1.2 percent from the average for January 2024. The sources requested anonymity as they were not authorized to speak publicly. Additionally, Russia has slightly enhanced options for fuel exports in comparison to crude oil, facilitated by a price cap imposed by the G7. Under this cap, Moscow is permitted to utilize Western fleets and shipping services if it sells crude oil at prices below $60 per barrel and diesel at prices below $100 per barrel.
The price limit of $60 per barrel is less than the existing price of Russia’s leading Urals blend, which hovers around $70. According to traders, the current price cap on products that trade at a premium to crude oil, especially diesel—fixed at $100 per barrel—continues to provide an opportunity for profit. Presently, Russian diesel is priced at approximately $75 per barrel. Furthermore, it is noted that there is a greater availability of vessels for fuel than for crude oil.
The efforts of Russia to enhance its refining capabilities are hindered by drone attacks from Ukraine and an overheated economy. Rosneft, the leading oil producer in Russia, has indicated that plans for refinery modernization may need to be reconsidered. Nevertheless, sources report that Russian refineries are operating at maximum capacity, anticipating improved opportunities to locate vessels for fuel export following sanctions imposed on crude tankers. An industry insider remarked, “We must maximize oil processing to utilize the sanctioned oil.”
The sanctions, implemented by the Biden administration in early January, shortly before Donald Trump assumed the presidency, targeted approximately 180 tankers primarily engaged in the transportation of Russian oil and significantly lower quantities of refined products. In 2024, these tankers were responsible for transporting around 1.5 million barrels of crude oil daily, alongside just 200,000 barrels per day of refined products, as per Morgan Stanley’s analysis.
The sanctions have also been directed at Russian oil companies Surgutneftegaz and Gazprom Neft. According to one source, Surgutneftegaz’s Kirishi oil refinery in Western Russia increased its oil processing by nearly 8 percent from December 1-27 to January 1-21. Russia ranks among the largest global exporters of diesel and fuel oil via maritime routes. Western officials have indicated that their objective is not to completely halt Russian exports, but rather to diminish revenues in order to compel Moscow to cease its military actions in Ukraine
