Russian Oil Output Ticks Up, But Slowdown Expected

Copyright © 2022 Energy Intelligence Group All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited.

Russia's oil production rose by 2% in the first few days of May, reversing a nearly 1 million barrel per day decline in April. But the uptick could be short-lived as Western resolve to isolate the country’s economy is poised to solidify.

Official data seen by Energy Intelligence show that crude oil and condensate production for the first three days of May averaged 10.26 million b/d — an increase of 215,000 b/d over the April average.

Refinery throughput also picked up, rising to 5.05 million b/d in the first four days of the month, a gain of 3.7% versus April.

Deputy Prime Minister Alexander Novak cited the data in Moscow earlier this week as evidence that the situation in the oil industry is "stable."

At the same time, international traders such as Vitol and Trafigura, have indicated that purchases of Russian crude will start to fall this month as EU restrictions on financial transactions with Russian entities go into effect.

Warning Signs

Two troubling signs have already emerged for Moscow this month.

Oil volumes stored in the system of oil pipeline operator Transneft grew by 389,000 b/d during the first three days of May.

In April, Transneft saw a net storage draw of 243,000 b/d after a large buildup in March, according to official data.

The decline in storage volumes in April helps explain how Russia was able to crank up exports by 9% last month, even as production and refinery throughput declined.

Furthermore, exports declined in the first 10 days of May, according to shipping data and Energy Intelligence's latest assessment.

Specifically, crude exports from Russia's Baltic and Black Sea ports fell by some 400,000 b/d from the April average to 1.7 million b/d.

And relative to the last week of April, the decline in the first 10 days of May was closer to 600,000 b/d.

The once-transparent trade in oil shipped from the Baltic and Black Sea ports has become murkier, with a growing number of vessels no longer disclosing their destinations or buyers.

EU Still Haggling Over Ban

The European Union continues to haggle over a proposed ban on imports of crude oil and refined products from Russia, but has not yet won the required approval of all 27 member countries.

Hungary, Slovakia and the Czech Republic argue that it would be more difficult and more expensive for those landlocked countries to stop buying Russian oil.

Meanwhile, other countries have stepped up their buying, especially India, which has been attracted by hefty discounts for Russia's Urals grade, which traders put at around $35 per barrel. This has allowed India to ramp up its refining runs and exports of products, including shipments of diesel to Europe.

So far in May, the Netherlands remains a favored destination for Russian oil, with one-third of all exports from the Baltic ports of Ust-Luga and Primorsk ending up there. Some of that oil then moves to other destinations after ship-to-ship transfers.

The bulk of Russia's exports are still ending up in Europe, including crude oil that flows through the Druzhba pipeline — at recent volumes of just over 800,000 b/d — including the pipeline's southern spur, which supplies Hungary and Slovakia.

Oil Trade, Oil Supply, Crude Oil, Oil Inventories, Sanctions, Policy and Regulation
Refined product prices have come off their recent highs amid rising refinery output and fears of stagnating demand.
Mon, May 23, 2022
The US downstream has absorbed the impacts of the Russian petroleum ban with few problems, but more structural challenges remain.
Mon, May 23, 2022
Jet traders say the fuel shortages expected this summer may go largely unnoticed as many flights are canceled due to staff shortages.
Fri, May 20, 2022