Russia cut oil exports by sea

As it became known to Kommersant, the Russian Federation fulfilled the announced reduction in offshore oil exports in August, which is now estimated at 2.94 million barrels per day. Exports fell below this level only in December last year, when the EU and the G7 imposed a price ceiling on Russian oil. The reduction in supply led to an increase in world oil prices, and also allowed the price of Russian oil to confidently exceed the ceiling level. According to experts, production was not affected due to the preservation of a high level of processing and an increase in reserves in oil storage facilities.

Marine exports of Russian oil fell in August to a minimum of this year and amounted to 2.94 million barrels per day (b / d), follows from Kpler data for 22 days of the month. Russia delivered less by sea only in December last year (2.91 million b/d), when the EU and the G7 began to apply the oil price ceiling as sanctions for the outbreak of hostilities in Ukraine. In July, maritime exports were at 3.1 million bpd. Thus, the Russian Federation managed in August at least to achieve the 500,000 b/d announced by the government in exports due to a reduction in shipments by sea, while pipeline supplies increased slightly.

The reduction is part of a joint effort with Saudi Arabia to support oil prices: Riyadh voluntarily cut crude production by 1 million barrels per day in July and August.

These moves allowed Russian oil companies to reduce the Urals discount to Brent to less than $13 per barrel in August from $40 per barrel in December 2022. The price of Urals in August exceeded $70 per barrel, while the ceiling level is $60 per barrel.

Initially, the Russian government did not specify from which base the export reduction would be implemented. As Kommersant reported, the base was the original export schedule of Transneft for the third quarter. Kommersant estimated the target level of offshore oil exports in August at 2.9–3 million b/d (see “Kommersant” dated July 17), and cumulatively with pipeline shipments – 4.1 million b/d, which corresponds to the current level. In July, the Russian Federation exported about 4.2 million b/d. At the same time, as a result of the reduction in exports, oil production was not affected, and oil refining still remains at a high level in July in the context of expectations of maximum damper payments (see “Kommersant” dated August 14). Some of the company’s excess oil was placed in refinery storage facilities.

Already in September, the Russian Federation will begin to increase oil exports, since part of the refinery will be spent on repairs, while a reduction in production is not expected.

In early August, this was confirmed by Deputy Prime Minister of the Russian Federation Alexander Novak, who announced the preservation of the export limit of 300,000 b/d next month. Such a step is quite natural, since it is beneficial for the Russian Federation to keep current oil prices above $80 per barrel. The weaker ruble in August will make exports even more attractive.

Exports of Russian oil in August fell to the lowest level since December last year, when the EU and G7 price ceiling for Russian oil began to operate, said Victor Katona from Kpler. In August, the Russian Federation manages to maintain stable levels of oil and condensate production (10.7 million b/d), as well as oil refining (more than 5.6 million b/d) by replenishing oil storage reserves, which increased by 2 million barrels during the month ( 286 thousand tons), estimates Mr. Katona. He believes that Russian oil companies, having reached the goal of reducing exports and rising oil prices, will begin to increase oil supplies abroad from the end of August, as a result of which oil quotations should fall from high August values ​​in September.

The decline in oil exports, according to Sergei Kondratyev of the Institute of Energy and Finance, is leading to higher prices for Russian oil, given the reduction in discounts on Urals and the ESPO blend. According to the Xinhua research center, he continues, the discount to Brent for ESPO oil delivered to the ports of Shandong is $1.8 per barrel, a month ago it was $4 per barrel. Market participants in India are talking about discounts (on a CIF basis) of $6 per barrel for Urals, the expert concludes: in July-August, the price of Russian oil not only followed Brent, but also reduced discounts to the benchmark at a faster pace.

Dmitry Kozlov