Russian Oil Output Shrinks Under Western Pressure

- Advertisement -

An EU oil embargo could drive down Russian supply by 3 million barrels a day, according to the International Energy Agency

- Advertisement -

The West’s response to the Russian invasion has scrambled the global oil market and hit Russia hard. European energy buyers have turned away from Russian diesel and other refined products, forcing Russian refineries to cut output and slash purchases of crude oil, the IEA said. India and Turkey have stepped in to become big buyers of Russian crude, allowing Russian exports to hold steady this year. But that hasn’t been enough to offset the drop in Russian domestic demand for crude oil and the end of exports to the US and the UK, which have both imposed sanctions on Russian oil.

- Advertisement -

The EU has slashed its purchases of Russian crude oil and petroleum products by around 15% since before the invasion, according to the IEA. The bloc has been wary of sanctioning Russian oil because of its deep dependence on Russian energy supplies. Hungary opposes an oil-sanctions plan under discussion within the bloc because it and other Eastern European nations import most of their crude oil via a Soviet-era pipeline linked to Russia.

While the IEA still expects a sizable drop in Russian oil output, its forecasts for lost Russian oil production have narrowed. The IEA had in a previous report said it expected the amount to reach 3 million barrels a day by the current month. Now it expects that amount will be reached in July.

- Advertisement -

Russian oil exports rebounded in April, after dropping in the previous month as the first Western sanctions took effect, the IEA said. Russia’s oil exports rose by 620,000 barrels a day to 8.1 million barrels a day, close to its prewar levels. While oil shipments to the EU, US and UK fell by around 1.2 million barrels a day, cargoes bound for India and Turkey jumped by 730,000 barrels a day and 180,000 barrels a day, respectively.

“They have been far more effective than many of us thought they would be. They have been able to find these one-off deals with tanker companies that are still willing to operate with them,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth.

Still, the threat of new measures and sanctions on Russia’s state-aligned Rosneft Oil Co.

due to take effect on May 15 means a bleak outlook for Russian oil exports, she said. “I think this is not a story that gets better for Russia. It is going to get worse.”

Europe’s decision to cut purchases of Russian petroleum products poses a bigger challenge for the country’s oil industry, said Toril Bosoni, head of the IEA’s oil markets division. Diesel and other refined products typically aren’t shipped long distances, unlike crude oil, which is often moved halfway around the world in tankers.

“The Russians are struggling to find buyers for the products,” Ms. Bosoni said. “They’re refining a lot less at home and domestic demand is also lower.”

Russia’s flagging output, coupled with constrained supply from members of the Organization of the Petroleum Exporting Countries, is keeping the oil market in a narrow deficit, a dynamic that analysts expect will keep energy prices high and add to strain on the global economy.

The IEA cut its forecasts for global oil supply this year by 100,000 barrels a day to 99.2 million barrels a day. Total demand for oil is forecast to reach 99.4 million barrels.

Still, lost supplies from Russia are being partly balanced by waning demand. Covid-19 outbreaks in China and Beijing’s strict lockdowns have reduced the global appetite for crude. Signs of flagging economic growth are also expected to reduce demand for oil.

The IEA expects oil demand to grow by 1.9 million barrels a day and 1.2 million barrels a day in the second and third quarters of the year, respectively. That is 200,000 barrels a day less in each quarter than it forecast last month. In the fourth quarter, the IEA expects demand for oil to contract by 200,000 barrels a day.

A key question for the rest of the year is whether Russia’s oil industry can continue to produce as before without technical support from the major Western oil companies that have largely pulled out of the country. Western nations have also forbidden the sale of energy-industry equipment to Russia, pressing the country’s aging energy infrastructure.

“We don’t think it’s going to have an immediate impact on supply,” Ms. Bosoni said. “Russians have a lot of the technology and know-how.”

Separately Thursday, OPEC cut its forecasts for oil demand for the second month running. The cartel said it expects demand for crude of 100.2 million barrels a day this year. That is 210,000 barrels a day less than it was expecting last month.

The group, which counts Russia as an ally, has slashed almost 800,000 barrels a day from its demand-growth forecasts since the war in Ukraine broke out.

OPEC said Russian oil output this year would be roughly 10.9 million barrels a day, a more optimistic reading than the IEA’s, but still 350,000 barrels a day less than it was forecasting in April.

Earlier this month, OPEC and a group of allied nations including Russia agreed to increase oil output by roughly 430,000 barrels a day—in line with what the group, collectively known as OPEC+, had already agreed to.

OPEC delegates said the IEA’s conclusions that Russian production is sharply declining wouldn’t prompt an immediate change in course from the cartel because Moscow’s exports remain resilient and the agency itself has concluded markets can weather oil sanctions on the Kremlin. OPEC+ has an agreement to continue slowly undo production cuts throughout 2022, a decision confirmed earlier this month.

Russian seaborne exports rose by 490,000 barrels a day to 3.9 million barrels a day in April thanks to a jump in India shipments, according to commodity data-intelligence firm Kpler. With the hefty discounts of up to $40 a barrel a day to international prices, Russia “may just be focusing on maximizing volumes to prove a point that the sanctions have failed,” said an OPEC delegate.

Write to Matthew Dalton at [email protected] and Will Horner at [email protected]


Credit: /

- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox