Pump while dear – Newspaper Kommersant No. 214 (7415) dated 11/18/2022

According to Kommersant, less than three weeks before the entry into force of the EU embargo, Russian oil companies are increasing oil production, almost reaching the levels of the beginning of the year. Thus, by mid-November, the industry produces an average of 1.48 million tons per day, and also continues to increase oil refining. At the same time, exports to non-CIS countries have already begun to decline, falling by 5% compared to the same days in October.

In the first half of November, Russia increased oil and condensate production by 1% compared to the previous month, to 1.48 million tons per day, sources familiar with the statistics told Kommersant.

Russian oil companies have come close to the maximum annual production level, which was observed in February-March (about 1.5 million tons per day).

In particular, a significant increase in November was provided by the Sakhalin-1 project, which, after the resumption of production in October, reached a capacity of 19 thousand tons per day, which is about 20% below the planned capacity in 2022.

In April, Russia faced a sharp decline in oil production (to 1.37 million tons per day) due to serious problems with the sale of sea shipments, due to the refusal of large foreign traders to cooperate with Russian oil companies against the backdrop of sanctions against the Russian Federation due to the outbreak of hostilities in Ukraine. Since May, the Russian Federation began to gradually restore production. After the EU countries, which accounted for about 85% of offshore oil supplies from the Russian Federation, reduced purchases, exports reoriented to other markets. From December 5, the European embargo on Russian oil comes into force, which will also make it impossible for European insurance of tankers for oil supplies from the Russian Federation to third countries.

Now the largest market for Russian oil is China, which is rapidly catching up with India, which in October accounted for about 40% of offshore oil shipments from Russia. In India, Rosneft owns 49% in Nayara Energy, which includes a large refinery and a network of filling stations.

Russian oil exports by sea and oil pipelines to non-CIS countries by mid-November decreased by about 5%, to 610,000 tons per day.

Reuters on November 17 reported that not all Indian consumers are ready to buy oil from Russia after December 5: we are talking about Reliance Industries Ltd and Bharat Petroleum, while Nayara Energy and Indian Oil Corporation are ready to continue purchases. The agency also expects a decrease in Russian oil imports from Chinese refineries. This could mean a further decline in tanker shipments in the second half of November.

Against this background, Russian oil companies are increasing refining: in the first half of November it increased by 2%, to 780,000 tons per day. The growth in processing is supported by large payments from the budget for the damper, which this year can reach 2 trillion rubles.

The increase in oil production to near the maximum level may be due to the uncertainty factor, believes Maxim Malkov from Kept, consumers in anticipation of the expected restriction of Russian oil supplies are trying to maximize their reserves.

The Russian Federation seeks to redistribute the flow of oil that goes by tankers by sea from western to eastern directions, the main volumes of the increase in supplies fell on China and India. For example, if during the summer months oil exports from Russia to China grew by 32%, then deliveries to India increased by about four times, he adds. A decrease in oil exports from Russia may occur in December, when restrictions on the supply of Russian oil will come into effect, the expert believes. In his opinion, oil production in Russia in 2023 may decrease by 7%.

According to the expectations of Sergei Kondratiev from the Institute of Energy and Finance, in December there may be a decline in production by 3-5% due to the introduction of a ban on oil supplies by sea. According to him, as the example of the coal embargo shows, although individual supplies can be carried out after the imposition of restrictions, a reduction in volumes is likely. He also draws attention to the fact that, according to Platts data, the spreads between the Emirati Dubai and East Siberian ESPO, as well as between Urals and Brent, have not yet increased, that is, Russian oil is not getting cheaper relative to peers, and this does not create incentives for Asian buyers to increase purchases. .

Dmitry Kozlov