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Russian Oil Sales, Output Hold Steady Despite Ban

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Russian crude oil exports have largely rebounded in the first half of January compared to December, the first month of the EU’s oil embargo and the G7 price cap on Russian barrels.

Oil production held steady in the first two weeks of the year as well, despite earlier predictions of sharp declines in the wake of the penalties imposed on Moscow for its war in Ukraine.

But the discount for Russian crude has widened sharply, and the list of customers has narrowed to just three big offtakers — India, China and Turkey. Some cargoes still sail to European countries that have secured sanctions exemptions and to the occasional rare destination, Energy Intelligence and shipping data show.

According to sources familiar with the Russian data, the country’s crude oil exports to non-FSU countries, including those via ports, pipelines and bypassing the system of national pipeline operator Transneft, averaged 4.525 million barrels per day in the first 16 days of January, which is up by over 4% — or by almost 190,000 b/d — compared to December. Russian December exports fell by some 265,000 b/d on the month after the embargo kicked in, and exports from Russian ports slipped.

Marine Shipments Rise

Russia's seaborne exports via its flagship ports on the Baltic and Black seas and the Pacific Coast jumped by almost 590,000 b/d on Jan. 1-16 versus December, largely because of the redirection to ports of Russian barrels that were earlier shipped via the Druzhba pipeline to Germany and Poland.

Both European countries pledged to stop purchases of Russian barrels starting from 2023, but Poland finally requested shipments of some 60,000 b/d for 2023 to meet its remaining contractual obligations with Russian producers, while Germany agreed to test crude supplies from Kazakhstan via the Druzhba pipeline. Data for the first 16 days of January show that Kazakh supplies to Germany have yet to start. Poland, meanwhile, is receiving marginal volumes via the line to meet its offtake obligations.

Total Russian shipments via the Druzhba pipeline dropped heavily by 370,000 b/d to just 300,000 b/d in the first 16 days of January compared to December, but as expected, flows continue to the landlocked countries along the southern Druzhba leg that received exemptions from the embargo — Hungary, Slovakia and the Czech Republic.

The redirection of flows from the Druzhba pipeline was the key factor behind a sharp increase in Russian seaborne shipments in the first half of January, with exports rising by 470,000 b/d and 40,000 b/d in the Baltic and Black seas, respectively.

In the east, Russian shipments to the Asia-Pacific region, mainly to China, rose both from the Pacific port of Kozmino and via the pipeline directly to China, as Beijing eases its Covid-19 restrictions.

Who Buys Russian Oil?

China, India and Turkey emerged as the largest buyers of Russian barrels in January as traditional European customers stopped their purchases. In fact, most of the cargoes loaded in Russia’s Western ports in January are sailing for India or Turkey. Prior to the Russian invasion of Ukraine on Feb. 24, 2022, Europe was the key destination.

Other west-bound destinations include sanctions-exempt Bulgaria and Romania or unusual takers like Cuba, shipping data show.

China takes most of crude directly by pipeline or from Kozmino.

The number of tankers not showing their final destination is also growing as the trading of Russian barrels becomes murkier.

Stable Production

According to sources familiar with official data, Russia's combined production of crude oil and condensate averaged 10.86 million b/d in the first 16 days of January, compared with 10.88 million b/d in December.

Deputy Prime Minister Alexander Novak said at the end of December that production could decrease by 500,000-700,000 b/d in the first thee months of this year if Russian companies fail to market their crude volumes.

"January is not over yet, but for now production remains on the level of December," the Russian deputy minister told reporters last week.

He acknowledged though that buyers have been able to negotiate deeper discounts for Russian oil. But this is not surprising, Novak said, as following the introduction of the G7 price cap, "buyers take into consideration the risks." He predicted the discounts would narrow again when "the situation stabilizes." Discounts for Russia's Urals crude export blend have widened to $40/bbl.

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

Topics:
Ukraine Crisis, Sanctions, Oil Supply
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