Russia has almost completed the reduction of oil exports

According to Kommersant, sea exports of Russian oil in August may fall to an annual minimum of 2.9-3 million barrels per day, mainly due to the Baltic ports. Thus, the Russian government will fulfill its promise to reduce oil exports by 500 thousand barrels per day (b / d). The baseline for the decline was the export schedule for the third quarter, but already in July, Russian oil companies almost reached the required levels. They will not need to reduce production, and the released volumes will be sent to refineries.

“Kommersant” became aware of the details of the reduction in oil exports by 500,000 barrels per day in August announced by the Russian government in early July. According to two Kommersant sources, it involves adjusting the export schedule approved by the Ministry of Energy of Transneft for the third quarter, which is compiled on the basis of applications from oil companies.

Initially, oil exports through the Transneft system, according to Kommersant, were expected at 4.16 million bpd (about 52.5 million tons per quarter), of which about 3 million bpd is exported through the Baltic ports , Novorossiysk and Kozmino. The volume does not include approximately 450,000 barrels per day, which are exported outside the Transneft system — shipments from the fields of the Arctic (including Novoportovskoye, Prirazlomnoye of Gazprom Neft) and Sakhalin. Export cuts in August will affect Urals shipments via the ports of Baltika and Novorossiysk, while pipeline shipments, as well as shipments of ESPO oil from Kozmino (trading at a premium to Urals), should not be affected. Thus, the target level of exports by sea in August is approximately 2.9-3 million b/d, and together with pipeline shipments – 4.1 million b/d.

The reduction will not require significant efforts from Russian oilmen. According to Kpler, in July the average daily offshore oil export fell to 3.1 million b/d against more than 3.4 million b/d in June and a record 3.9 million b/d in May. It was the same in July 2022.

The decline in exports from the Russian Federation is important in the context of relations with Saudi Arabia as part of the OPEC+ deal. Saudi Arabia voluntarily cuts production by 1 million b/d in July and August, hoping to stop the continuous downward trend in oil prices this year. As part of these efforts, the Russian Federation pledged to voluntarily reduce production by 500,000 bpd by the end of 2024, and further reduce exports by the same amount in August.

Kommersant’s interlocutors in the industry are confident that the reduction in exports will not require oil producers to reduce production, since volumes will be redistributed in favor of oil refining. “Companies will decide for themselves how they will act: either they will reduce exports or reduce production. But in general, the task is to reduce supplies to world markets,” Deputy Prime Minister Alexander Novak said on July 13. In June, oil companies almost completed spring repairs at refineries, and the record volumes of offshore oil exports in May were explained precisely by the loss of refining capacities. The increase in oil refining in July and August is designed to solve the problem of a shortage of gasoline in the domestic market of the Russian Federation, where a continuous increase in fuel prices has been observed since spring. According to one of Kommersant’s interlocutors, oil companies will increase fuel stocks for autumn repairs at refineries in order to avoid shortages. In addition, August is the last month when refineries will be able to receive the full amount of damper subsidies for the supply of fuel to the domestic market, since subsidies will be halved in September.

Kpler’s Victor Katona predicts maritime exports will decline to around 3 mb/d in August or even slightly more, with Northwest Russian ports taking the bulk of the decline. At the same time, oil companies will continue to increase oil refining in August to meet the growing demand for fuel, the expert notes. According to Mr. Katona, its volume will increase by about 100-200 thousand b/d from 5.65 million b/d in July. Accordingly, the total oil export in July is expected to be at the level of 4.25 million b/d, in August it will be slightly lower – in the range of 4.1–4.2 million b/d. Although, according to the repair schedule, work at the Angarsk, Ryazan, Saratov refineries is scheduled for August-October, Viktor Katona does not expect a significant drop in refining capacity in August, since oil companies are economically interested in producing fuel during a period of high damper payments.

Dmitry Kozlov