MOSCOW: Domestic crude oil prices in Russia, the world's top producer, surged by over 14 percent to an all-time high last week due to cuts in volumes usually supplied to the spot market by TNK-BP, acquired by Rosneft, and higher international oil prices, traders said.
The spot market, with capacity of around 3.5 million tonnes (25.7 million barrels) of crude per month almost a fifth of all oil consumed in Russia first felt the shock of the $55 billion TNK-BP buyout in June, when prices surged almost 25 percent.
Crude in the domestic spot market is bought mostly by refineries which do not have any, or enough, production of their own.
Traders said the quotes for spot delivery in August on the Russian market reached an all-time high after some previous non-binding supply agreements with TNK-BP were scrapped and Rosneft's offers, which traditionally make up a third of the total volume on the market, dried up.
The companies are not obliged to supply volumes to the spot market but they sell some barrels domestically, on top of their long-term agreements.
The shortages on the domestic spot market and in Europe have started to appear as Rosneft started to boost oil flows to China after securing a $270 billion deal earlier this year to more than double the supplies.
Rosneft declined immediate comments on its strategy to supply the domestic oil market.
The rise followed an increase in the price of Brent, which last week traded in the range of $106.5-$108.5 per barrel, up from $99.7-103.4 a month earlier. An expected increase in the export duty next month also underpinned the rally.
Prices for delivery in August at West Siberian metering points jumped to 14,050 - 14,500 roubles ($430-$440) per tonne from 12,500 - 13,100 roubles in July. This is more than the exporting netback via Baltic Sea port Primorsk the price excluding transportation costs and export duty for Urals of 13,150-13,700 roubles, according to Reuters calculations.
Higher domestic prices may have contributed to thin Russian export volumes, which in turn supported the prices of Russia's Urals blend on international markets.
REFINERIES HIT HARD
The rising prices have wiped out refining margins for local plants, which were forced to pay a premium of up to 1,000 roubles per tonne to the exporting netback and scale back production volumes.
According to the latest figures from Russia's Energy Ministry, small refineries cut production by 10.5 percent to 958,000 tonnes in June. That bucked last year's trend, when the independent refineries boosted output by 13.5 percent to 12.5 million tonnes (250,000 barrels per day).
"Production volumes have been decreasing across the whole country due to uncertainty over resources," a source at a refinery said.
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