The Russian government will continue to reduce oil exports

The Russian government announced its intention in September to continue the cut in oil exports that began in the summer, reducing it by 300,000 barrels per day. This will be achieved through a corresponding adjustment of Transneft’s export schedule for the third quarter. In September, part of the refinery goes to preventive maintenance, and therefore Russian companies will be able to export more oil than in August, by about 200 thousand b/d. Russia’s partner in the OPEC+ deal, Saudi Arabia, also extended a 1 million b/d cut to September, pushing up oil prices.

The Russian Federation will continue to reduce exports by 300,000 barrels per day in September “as part of efforts to ensure market balance,” Deputy Prime Minister Alexander Novak’s secretariat said. Thus, the Russian Federation intends to start restoring oil exports, which it began to reduce in July-August.

Thus, according to the intentions of the government, in August Russian oil companies must reach reduction of oil exports by 500 thousand b/d. The government did not specify from what level the reduction would be counted, but, according to Kommersant, this base was taken from the export schedule of Transneft for the third quarter, which assumed deliveries abroad of 4.16 million bpd.

At the same time, the main part of the reduction should fall on shipments from the ports of Novorossiysk and the Baltic. According to the plan, they were supposed to ship 2.2 million b/d in the third quarter, and about 800 thousand b/d were to be exported from the port of Kozmino.

At the same time, the Russian Federation actually reached the target level of reduction in July, which it intended to reach in August. According to Kpler, maritime exports in July amounted to 3.1 million b/d against 3.4 million b/d in June, while in May it reached a maximum of 3.9 million b/d. The volumes redirected from exports went to refineries, which mostly completed their repairs in June. But in September, the refineries will resume large-scale repairs, so the Russian Federation will be able to redirect part of the volume of oil from refining to export.

Sources of Kommersant also doubt that oil companies will have to reduce production in the face of increased oil prices in recent weeks. “Companies will decide on their own how to act: either they will reduce exports or reduce production. But in general, our task is to reduce supplies to world markets,” Alexander Novak said in July.

In addition, the extension of the reduction in exports is necessary so that companies, due to the halving of damper payments in September, do not increase oil exports uncontrollably, that is, to the detriment of loading refineries and fuel production.

The wholesale cost of fuel in Russia has risen almost continuously this summer in the face of strong demand and a weakening ruble.

The actions of the Russian Federation are clearly coordinated with Saudi Arabia, which on August 3 also extended as of September, the voluntary production cut by 1 million b/d, initiated in July. At the same time, it is assumed that on August 4, OPEC + will not change the terms of the deal to limit production during the meeting. In July, for the first time this year, the joint efforts of Saudi Arabia and Russia led to a significant and prolonged increase in world oil prices. In addition, the discount of Urals oil to Brent, which reached $40 per barrel in December 2022, when the EU and the G7 introduced a price ceiling on Russian oil (set at $60 per barrel), sharply decreased. In July, the discount, according to official data from the RF Ministry of Finance, fell to almost $15 per barrel.

The start of the autumn season for repairs at refineries complicates the task of the Russian authorities, since the resulting excess oil will sooner or later have to be exported, Victor Katona from Kpler believes. He believes that this explains the decline in the volume of voluntary reduction from 500 thousand to 300 thousand bpd. Since up to 800,000 b/d of oil refining capacity will not be available at the peak of refinery repairs in mid-September, Russia is likely to continue easing export restrictions in October, Mr. Katona believes. Considering that, according to the export schedule for the third quarter, oil exports by sea were expected at the level of 3.6 million b/d, the reduction by 300 thousand b/d still allows Russian oil companies to increase exports in September by 200 thousand b/d compared to August.