Russian Oil Sales Decline Ahead of Embargo

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Russian crude oil exports dropped for the third month in a row in November, the last month before the EU's embargo and the G7 price cap took effect on Dec. 5. Given that Moscow says it would rather cut production than agree to the price cap, the outlook for any turnaround is bleak, and sales are expected to drop further in 2023 unless Russian producers manage to redirect volumes to other markets.

In November, Russian crude oil exports to non-former Soviet Union countries dropped to their lowest levels since February, although the total was still up on the year, according to sources familiar with the data. Total exports, including pipeline and seaborne supplies as well as shipments bypassing the system of national pipeline operator Transneft, dropped by 1.5% on the month to some 4.6 million barrels per day in November.

Shipments along the trunk network of pipeline operator Transneft saw their largest decline of roughly 230,000 b/d in November from the previous month, with exports in the western direction suffering the most. Exports via the Druzhba pipeline to Europe dropped by almost 100,000 b/d compared to October, hitting their lowest since February.

Market sources say that shipments via the northern leg of the Druzhba pipeline to Poland and Germany will dry up completely in 2023 as supply contracts expire, with neither side in the mood to renew them. Both Germany and Poland have pledged to stop Russian imports by year's end in response to Moscow's war in Ukraine, while Russian producers are said to have already managed to reallocate most of the volumes to other customers. Shipments via the southern leg of the Druzhba pipeline to Hungary, Slovakia and the Czech Republic should continue as they are exempt from sanctions.

Passage to India

Crude oil exports from the Baltic Sea ports to western destinations were rather flat on the month in November as Russia seeks out new routes. Shipments from the Baltic ports are heading for India, for example, where Russia remained the country's largest crude supplier for a second consecutive month in November. India, the world’s third-largest crude oil consumer, imported over 900,000 b/d of Russian oil in November, accounting for roughly a fifth of its consumption. India is expected to continue buying Russian crude after Dec. 5, although uncertainties remain.

Russia is also looking at other Asian markets. A delegation from Pakistan was in Moscow last week for talks on oil supplies, although media reports suggested that the two sides failed to immediately agree on several issues, including the price. Analysts shipping Russian oil to Pakistan is about five times more expensive than Mideast barrels and local refineries are not equipped to process Russia's higher sulfur crude.

Moscow continues to rely on China, whose appetite for Russian barrels has been firm in recent months. In November, Russian pipeline supplies to China rose slightly on the month, while shipments via the Pacific port of Kozmino remained stable.

Meanwhile, a drop in deliveries via Transneft's pipeline network was slightly offset by higher exports bypassing the system. Those rose by over 160,000 b/d on the month thanks largely to restoring output at the Sakhalin-1 project.

Refining Rise

November's fall in exports was offset by higher deliveries to domestic refineries as oil firms aim to maximize runs ahead of the EU embargo on Russian petroleum products that starts on Feb. 5.

Traditionally, Russian exports in November weaken as scheduled maintenance at domestic refineries generally comes to an end. This year, however, crude oil deliveries to domestic refineries jumped by almost 150,000 b/d on the month to 5.74 million b/d, their highest level since February.

Refining throughput for the month amounted to 5.6 million b/d, up 65,000 b/d on October and the highest level since February, when runs were 5.8 million b/d.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >

Crude Oil, Non-Opec Supply, Sanctions, Ukraine Crisis
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