Novak: Russia's April Oil Output to Fall 4%-5%

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Deputy Prime Minister Alexander Novak says Russia's oil production is set to fall by 4% to 5% in April, compared with March, as its exports face logistical problems.

Novak told reporters on Thursday that the anticipated decline reflects "changes in logistics, financial problems" including insurance of ships and their cargo.

The EU, the US and other countries hit Russia with financial and shipping sanctions after Moscow sent its troops into Ukraine on Feb. 24.

And although few countries have banned imports of Russian oil, major industry players such as Shell and BP have said they will stop buying it.

This has disrupted normal trade flows, forcing Russian producers to offer deep discounts to find buyers as traditional customers shun their oil.

Official Russian data showed that combined production of crude oil and gas condensate fell by 0.5% from February to 10.996 million barrels per day in March, although exports rose by about 5%.

Government data for the first three days of April showed a further fall in output to 10.57 million b/d — more than 400,000 b/d below the March average.

Fuel Oil Surplus

Novak said crude oil throughput at Russian refineries was also set to fall in April, but he insisted that the domestic market would remain well supplied with fuel.

Russia's refinery runs crashed by more than 11% in March versus February as oil companies grappled with a glut of dirty products and a lack of buyers for middle distillates. Runs fell by 670,000 b/d from February to 5.24 million b/d in March.

Russia's top independent oil producer Lukoil has warned that it may have to rein in its refining activity because of a growing surplus of fuel oil (mazut), for which the company lacks storage capacity.

Russia typically exports about 85% of its 750,000 b/d of fuel oil production, and last year about half of this was shipped to the US.

However, Washington has recently banned imports of Russian crude oil and refined products, and Russian refineries are now stuck with the unwanted volumes.

Russian business daily Kommersant reported on Thursday that Lukoil CEO Vagit Alekperov had written to Novak in late March proposing to ship surplus fuel oil to power plants for electricity generation as a substitute for gas.

Payment in Rubles

Novak said some European customers have agreed to pay for Russian gas, in line with a law signed by President Vladimir Putin last week.

Putin said the move was a response to several countries freezing Russia's access to foreign currency reserves held overseas.

Novak said some customers are still studying the new requirement but that it would become clear by May, which of them have agreed to make the switch to rubles.

Many European countries are resisting the requirement to make payments in rubles, arguing that it is a way for Russia to bypass financial sanctions.

Novak also confirmed that some purchases of Russian oil and coal have already been paid for in Chinese yuan.

Oil Supply, Sanctions, Security Risk
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