Last year, Russia was the world's largest oil producer ahead of Saudi Arabia. At roughly 9.84 million b/d, Russia produced almost a fourth of non-OPEC crude oil in 2007. However, the latest data now suggests that the days of strong Russian oil output growth are over. After an increase of 2.3% in 2007, crude oil production plummeted in January & February. The decline accelerated further in March, to 1.0% YoY, and Russia's first quarter crude oil production averaged just 9.75 million b/d, down 0.8% YoY. Following years of continued government attempts to curb private sector profits, Russia is a prime example of what is happening in many oil producing countries. Mature fields, exploding costs, a heavy tax burden, infrastructure constraints and market unfriendly government policies have led to stagnation in oil exploration and production. Base production in Western Siberia is now in steep decline, with the main fields reaching a 5-6% production loss relative to last year. Net, we now believe Russian production will grow by just 70 kb/d in 2008. In addition, just as in many other emerging markets, internal demand for light products is rising quickly. At present, Russia has one of the fastest growing car markets in the world, with sales expanding at an annual rate of 10%. Meanwhile air travel demand is also growing very quickly. As a result of the strong domestic demand, crack spreads for light products have risen significantly above those in Europe. Needless to say, refiners in Russia are maximizing crude runs to benefit from the strong margins. However, due to the strong domestic demand and the skewed export tax system, exports of gasoline and diesel have been falling. In turn, all these factors have helped send oil prices to record levels in recent days.