Russian refineries cut oil runs due to losses

MOSCOW: At least three Russian refineries had to halt processing or cut runs due to heavy losses amid export curbs, rising crude prices and high borrowing costs, according to five industry sources.

The closures highlight the struggles of the Russian refining industry, which has been caught in the crosshairs of Ukrainian drone attacks, Western sanctions on Russia, which force refiners to sell fuel at a discount, as well as high interest rates.

The five sources who work at companies, which operate the refineries and are familiar with the refineries’ finances, said the three plants - Tuapse, Ilsky and Novoshakhtinsky - have suspended or cut runs in recent months.

The development has not been previously reported.

The crisis is reducing fuel exports and denting companies’ revenues, generating less cash for the state budget at the time of high inflation and uncertainties on energy markets, already concerned by sluggish demand, Reuters reported.

Refiners around the world reaped record profits in 2021 and 2022 from the post-pandemic surge in travel demand and recovering economic activity.

However, margins then dropped sharply as huge new plants opened up around the world and demand growth slowed, partly due to efforts to transition away from fossil fuels.

Russia’s least sophisticated refineries, which produce no premium fuels, have been hit the hardest, posting losses of up to 10,000 roubles ($102) per metric ton during several months of the second half of 2024, two sources said.

Russia’s biggest oil firm, state-run Rosneft had to suspend refining several times this year at its large, but relatively unsophisticated Tuapse plant on the Black Sea due to weak margins, the sources said.

Rosneft did not reply to a request for comment. Other major Russian oil firms - Surgutneftegaz, Gazpromneft, Lukoil - also did not respond.

Smaller, independent Ilsky and Novoshakhtinsky refineries in Russia’s south have been running at half of their nameplate capacity for several months, processing some 70,000 and 60,000 barrels per day respectively due to weak margins, according to four industry sources.

All three refineries were hit by Ukrainian drones earlier this year, contributing to the low runs, the sources added.

Independent refiners have to amass debts as they cannot count on support of bigger parent firms, the sources said.

Russia’s central bank raised interest rates to 21% from 19% last month, the highest level since the early years of President Vladimir Putin’s rule in a move to further complicate survival for many plants, the sources said.