Russia to cut oil exports by 500,000 bpd from August

Russia has announced plans to cut oil exports by 500,000 bpd from August to support Saudi Arabia’s efforts to stabilize oil prices. According to Kommersant’s interlocutors, the Russian Federation is probably already close to the announced reduction, since in May, against the backdrop of preventive repairs at refineries, it exported by sea this year’s maximum 4 million barrels per day. The decision to limit oil exports will force oil companies to increase the load on refineries, which will help to somewhat stabilize fuel prices, which have been continuously rising in recent months.

The Russian Federation intends to reduce export supplies of oil by 500 thousand barrels per day (b / d) from August, according to statement Deputy Prime Minister Alexander Novak. The report does not indicate which month is the base for the reduction in exports. Since we are talking about exports, not total oil production, the released volumes can be redirected to the domestic market.

Kommersant’s interlocutors suggest that the declared reduction in exports will be counted from the level of May 2023, when it reached its maximum values ​​this year.

The Russian Federation has already actually reduced marine oil exports in June relative to May by about 450 thousand b/d, in May it reached 4 million b/d against the background of the peak of repairs at refineries, Victor Katona from Kpler estimated. Thus, if May is taken as the basis for the reduction, then it can be assumed that already in July the Russian Federation will actually reach the target level of reduction. According to Mr. Katona, in the next two months, Russian oil companies will load their refineries to the maximum, since they will receive full damper payments, which will be halved from September. Also, oil companies will try to saturate the market with gasoline, the prices for which within the Russian Federation have been continuously growing during repairs at refineries. The expert also notes that the reduction in export shipments may allow Russian oil companies to strengthen their negotiating positions to reduce the Urals discount to Brent.

The reduction of the damper since September threatens to increase the export parity for gasoline, the growth of wholesale prices for which is a matter of concern for regulators. Under these conditions, it is beneficial for oil companies to increase oil exports to the detriment of oil refining, which in theory threatens to lead to a shortage in the fuel market (see Fig. “Kommersant” dated July 3). However, the directive reduction in exports will help maintain the volume of oil refining.

The reduction in the refining margin could be offset by a reduction in discounts on oil exports due to the withdrawal of 500 thousand b/d from export destinations, as well as, potentially, an increase in oil prices. The maximum discount for Urals to Brent in the severance tax formula should decrease from $25 to $20 per barrel from September.

Saudi Arabia July 3 announced, which will extend its voluntary production cut by 1 million b/d to 9 million b/d until August. According to Maxim Malkov from Kept, the actions of the Russian Federation and Saudi Arabia to reduce exports and reduce production will contribute to an increase in oil prices to $80 per barrel and above.

So far, however, the cuts announced this year by members of the OPEC+ deal have not been able to prevent a gradual decline in oil prices.

In March RF pledged by June, voluntarily reduce production by 500,000 barrels per day from February levels. In May, oil production in the Russian Federation, according to OPEC, amounted to 9.5 million b/d, with a formal quota of 10.5 million b/d (this volume does not include another approximately 1 million b/d of gas condensate, which is not taken into account under the deal ). Saudi Arabia produced 9.87 million b/d in May, but the kingdom’s real production in July will be 9 million b/d due to voluntary cuts. In early June, OPEC+ decided to deepen the deal to cut production and continue cooperation beyond 2023. In particular, Russia extended the March production cut until the end of the year and agreed to reduce its quota from 2024 to 9.4 million b/d against 10.5 b/d for Saudi Arabia.

If the entire volume of 500,000 barrels per day is redirected to refineries, then oil companies will increase processing by about 10% – this is achievable and will help curb the growth of wholesale fuel prices, Boris Sinitsyn, head of resource sector analytics at Renaissance Capital, believes. Importantly, this volume will affect the global balance, the analyst believes: if the IEA previously estimated the deficit in the global oil market at more than 2 million b / d in the second half of 2023, then taking into account the new reduction from Saudi Arabia and Russia, the deficit may increase accordingly .

Dmitry Kozlov