On January 1, 2024, Russia's Ministry of Finance announced a reduction in the export tariffs for crude oil from $24.7/tonne to zero. While this news has generated considerable discussion in the market, the actual impact on Russia's exports, global crude oil prices, and China's imports is anticipated to be less significant than initially expected.
First, the exports of Russia crude oil are unlikely to see a boost because the export tariffs are gradually replaced by the resource mining taxes according to the petroleum tax reform starting as early as in 2014. In other words, the crude oil export tariffs falling to zero does not mean that the petroleum enterprises are free from taxes when exporting crude oil.
Therefore, though the export tariffs will be lowered to 0 in 2024, the crude oil exporters' exporting cost is unlikely to be significantly reduced as they need to pay resource mining taxes instead.
Moreover, Russia is now definite to reduce the crude oil supply, as evidenced by the falling exports of Russia crude oil through 2023, in addition to Russia's production cut vow to OPEC+.
Sources: Kpler, Mysteel OilChem
Second, China's imports of crude oil from Russia are also projected to be immune to Russia's tariff change.
Taking the traditional independent refineries in Shandong Province as an example, they are always challenged by feedstock supply shortage because they need to scramble for the sources with India, China's state-owned refineries, as well as the large refining-chemical refineries. In addition, on the backdrop of rising prices of some crude oil varieties from the Middle East, Russia ESPO oil prices are likely to remain high despite potential mild drops.
As such, Russia crude oil export tariffs falling to zero will not necessarily lead to significantly falling prices of their crude oil export prices. And it is natural that China's imports will not rise palpably.
Third, the global crude oil prices are less likely to be greatly influenced by the new tariffs primarily because the Russia's exports are unlikely to stage an overturn as explained in the above paragraphs.
Furthermore, it is not the first time in history that Russia altered its crude oil export tariffs, but the global crude oil prices never once reacted strongly to such changes.
To sum up, the Russia lowering the crude oil export tariffs to zero will not bring significant influences to its own exports as well as the global crude oil prices.
Written by Aggie Hu, huchenying@mysteel.com
Edited by Navy Liu, liuchuanjun@mysteel.com