Decline in Russia's Oil Output Accelerates

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The anticipated decline in Russia's oil production started to gain real traction during the first two weeks of April, while refinery throughput has stabilized after plummeting in March.

Crude oil exports, meanwhile, have actually increased versus the prewar levels of February, supported by enticingly steep discounts at a time of triple-digit prices.

Energy Intelligence expects Russia's production will continue to wither over the next couple of months, and likely beyond, as the battle for control over eastern Ukraine intensifies and calls for boycotting Russian energy supplies grow louder.

In the first two weeks of April, Russia's output of crude oil and gas condensate amounted to 10.19 million barrels per day, which was down over 800,000 b/d from March.

By contrast, March output fell by a mere 65,000 b/d versus February as many traders continued to load Russian barrels, despite previously announcing their intention to stop doing so.

On Apr. 10, production dipped as low as 9.82 million b/d as oil firms, faced with a lack of storage capacity, were forced to shut in wells.

Energy Intelligence has forecast that crude and condensate production in April will average 9.75 million b/d.

Crude output alone is seen at 8.9 million b/d, which is 1.5 million b/d below the country's Opec-plus target.

Fragile Refining Balance

Russian refineries' crude throughput has tanked by 15%, or 900,000 b/d, to 4.94 million b/d since the war started, according to official data for the first two weeks of April.

But crude runs in the second week picked up by 25,000 b/d versus the first week as companies sought to meet domestic demand for fuels and take advantage of attractive export netbacks for diesel.

The US ban on heavy fuel oil has arguably bruised the industry more than any other punitive measure, given the sheer volumes that Russia cranks out and the lack of other export markets.

Rosneft, the country's largest refiner, has had to significantly reduce runs at many plants — such as Ryazan, Tuapse and the Ufa group — or even close down primary distillation units because of the huge surplus of heavy fuel oil.

Similarly, refiners have been unable to offload naphtha, normally a favored petrochemical feedstock for European steam crackers.

Russia exported an average 400,000 b/d of naphtha in December-January, but those volumes sank to 255,000 b/d in Apr. 1-16, according to official data seen by Energy Intelligence.

Exports Remain Robust

Exports from Russia's European ports remained steady in the first half of April versus March at close to 4 million b/d.

Crude exports from the Baltic and the Black Sea amounted to 1.96 million b/d, while product sailings came in at 2.02 million b/d, shipping data show.

Total volumes in the first half of April were nearly 600,000 b/d lower than in February, which were high at 4.57 million b/d.

Crude exports crept up, against expectations, by 260,000 b/d, but product sales were down 860,000 b/d from February.

In the past week, Russian oil companies have tapped into relatively meager inventories that had become bloated.

As of Apr. 15, crude stocks at production units were down 65,000 b/d compared to the start of the month at 15.1 million barrels, according to official data.

Discounts for Urals crude — around $35 per barrel relative to Brent — are enticing opportunistic buyers and keeping the oil flowing.

Although Russian barrels have been stigmatized since Feb. 24, they have continued to find a home as a result of heavy buying by international traders, low-profile transactions, and diversion of cargoes to storage or Asia.

This rerouting has upended typical trade flows. Russian crude that is now flowing to Asia instead of Europe has been displacing crude that would normally be sold into Asia but is now going to Europe.

Crude Oil, Oil Supply, Military Conflict, Sanctions, Ukraine Crisis
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