Oil jumped up to the ceiling – Newspaper Kommersant No. 226 (7427) of 06.12.

The Russian Federation managed in November before the introduction of the EU embargo to increase oil production by about 2%, to almost 1.49 million tons per day. This means that due to the delayed effect of export restrictions on production, it could reach 530 million tons by the end of the year. According to analysts, production in the first quarter of 2023 could fall by 500,000 barrels (68,000 tons per day) per day. The most vulnerable to sanctions will be the export-oriented Arctic fields – Prirazlomnoye, Novoportovskoye, Trebs and Titov.

The Russian Federation increased oil production in November by slightly less than 2% compared to October, to 1.486 million tons per day, sources familiar with the statistics told Kommersant. Production grew steadily throughout November, including due to the resumption of the work of the Sakhalin-1 project, where the Russian government in October replaced the operator from the American ExxonMobil to Rosneft. However, it was still not possible to reach the February-March production level, when it reached 1.5 million tons per day. Since the beginning of the year, about 489 million tons have been produced in the Russian Federation in 11 months. If the current level of production is maintained, oil production in the Russian Federation may approach 535 million tons at the end of the year (in 2021 it amounted to 524 million tons).

Production growth in February-March was interrupted by US and EU sanctions: as a result, foreign buyers of Russian oil and oil products began to refuse cargo due to reputational and sanctions risks, and already in April, the Russian oil industry experienced the largest decline in production this year – up to 1. 37 million tons per day. Gradually, Russia began to reorient oil supplies to the Asian market, primarily to India.

On December 5, the EU embargo on offshore shipments of Russian oil came into force, but European countries began to reduce purchases in advance. Exports by sea and oil pipelines to non-CIS countries in November decreased by about 4%, to about 615 thousand tons per day. In the context of export restrictions, Russian oil companies increased primary oil refining by 2% in November, to 785,000 tons per day. Refining is growing, despite the seasonal decline in demand for fuel in Russia and the reduction of damper payments, which decreased for gasoline and diesel fuel in November by 56% and 29%, to 4.1 thousand and 18.3 thousand rubles. per ton, respectively. The fall in Urals prices at the end of November may lead to a further reduction in the damper in December.

Another threat, as a result of which the Russian Federation may reduce exports, and after it, oil production, is the introduction by the G7 countries of the price ceiling for oil from Russia from December 5: it is set at $60 per barrel. According to Russian Deputy Prime Minister Alexander Novak, the country will not sell oil to countries that adhere to the price ceiling, “even if we have to cut production somewhat.” “We believe that this instrument is non-market, ineffective, grossly interfering with market instruments, contrary to all rules, the same WTO for example. In our practice, we are not going to use tools related to price cap. To do this, we are currently working on mechanisms to prohibit the use of the price cap tool, regardless of what level will be set, ”Interfax quotes Mr. Novak. JP Morgan estimates that the effect of restrictions on oil exports will lead to a decrease in oil production in Russia by 500 thousand barrels per day (68 thousand tons per day) in the first quarter of 2023.

In December, production may drop to about 1.4 million tons, according to Sergei Kondratyev of the Institute of Energy and Finance. The “ceiling” of oil prices will have a limited impact on the dynamics of exports for the time being, the cessation of oil exports from Russia to the EU will be more important, he notes. Projects oriented to export to the EU markets, such as Bashneft-Polyus (export from the Trebs and Titov fields through the Varandey terminal), Prirazlomnaya, and the Novoportovsky cluster, may suffer the most from the ban. At the same time, the expert notes that it is still unclear whether, in practice, deliveries of Russian oil by sea to Bulgaria will continue, although the country has received an exemption from sanctions until 2024.

Dmitry Kozlov