Russian refineries are considering run cuts because of sharply declining export netbacks for fuel oil, although no decisions have yet been taken, sources said this week.
Export netbacks -- the return from exports after transportation costs and tax are taken into account -- have dropped into negative territory based on the price of international benchmarks, meaning transportation costs exceed the profit from selling on international market.
But, as one source said, the situation varies depending on whether the refinery produces cracked or straight run fuel oil. While cracked fuel oil typically sells on a par or with a discount to international benchmarks, straight run fuel oil attracts a premium.
Earlier Wednesday it emerged that Rosneft's tender for 2016 for M100 fuel oil in the Far East has been awarded at a premium of around $55/mt to the Mean of Platts Singapore 180 CST High Sulfur Fuel Oil assessment. (See story 918 GMT).
Rosneft was selling product from its Angarsk, Achinsk and Komsomolsk refineries, which typically produce 1.5% max sulfur content product.
But for refineries that produce high sulfur cracked fuel, prospects for exports have become worse with the fall in Brent values.
Russian oil majors started reducing their primary processing earlier in the year with the aim of reducing fuel oil output. Smaller refineries have mostly continued processing, but further runs are under mounting threat.
"In January they will not reduce throughput, but if the situation doesn't change, they are going to," said a trader.
"It's difficult to say, but if Brent drops to $20/b, nothing can be ruled out," another source said.
