Russian Oil Sales Stay High Despite Output Cut

Almost four months since the EU crude oil embargo and a broader Western price cap on Russian barrels kicked in, Russian crude oil exports remain high.

Seaborne exports in March are expected to be even higher than the average for last year as Asia’s demand for discounted Russian barrels is helping producers to reroute their barrels. In the west, pipeline flows remain strong via the southern leg of the Druzhba pipeline, although the economics of such shipments might deteriorate with Ukraine aiming to hike transit tariffs.

Strong Exports

According to shipping data, Russian seaborne exports averaged over 3.3 million barrels per day during Mar. 1-27, roughly in line with February levels and up by some 200,000 b/d from the average for 2022. Combined with the regular pipeline flows to China and expected shipments via the southern leg of the Druzhba pipeline to Hungary, Slovakia and the Czech Republic, Russia's total exports to non-FSU states are seen at 4.4 million–4.5 million b/d in March, in line with February levels.

The strong sales mean that Russia’s plans to voluntarily cut production by 500,000 b/d starting from March should have a minor impact on exports, at least for this month, as predicted by Energy Intelligence. Narrowing price discounts for the country's Urals crude oil blend have also prompted Russian producers to send their barrels overseas.

For the next quarter, Moscow has penciled in even higher seaborne exports than planned for the first quarter, a move largely driven by the traditional maintenance season at domestic refineries.

Seaborne Movements

In March, meanwhile, Russian exports from the Baltic Sea outlets have declined by some 200,000 b/d on the month, which is understood to be partly explained by maintenance along the trunk pipeline network running to the flagship Primorsk outlet. The decline in the Baltics, however, was more than offset by higher exports from the Black Sea port of Novorossiysk, which have more than doubled in March compared to February, when the port was hit by heavy storms.

India, China, Turkey and Egypt were the top destinations for Russian barrels shipped from the west-bound Russian ports in March. India, which outstripped China several times over the past year as Russia’s top seaborne crude offtaker, in March started taking more cargoes from the Pacific port of Kozmino — a traditional outlet for Russian exports to China and other Asian markets. Shipments from Kozmino remained firm in March at close to 770,000 b/d.

In the east also, crude oil exports from the De-Kastri terminal, an outlet for the Sokol crude from the Sakhalin-1 project, have reached over 220,000 b/d, to levels seen before Exxon Mobil halted its activities in the project. The US supermajor had cut output from the three fields offshore Sakhalin to almost zero for several months of 2022 before a new operator for the project was established.

Druzhba Troubles

Moscow has penciled in a heavy export program for April–June, but there are questions over whether it will be fulfilled given the country’s planned production cuts. Uncertainties also remain over Druzhba exports. The northern leg — which used to ship crude to Germany and Poland — now only ships Kazakh barrels to Germany. However, shipments might resume to Poland's PKN Orlen, which still has a contract with Tatneft, sources say. Shipments to Poland stopped in late February, but the second-quarter export program still includes some 300,000 metric tons to be sent to Poland. Sources say those volumes could easily be pumped within several weeks if shipments were to restart.

The second-quarter export program also envisages higher shipments via the southern leg of the Druzhba pipeline, mainly to Slovakia. But the economics of those shipments, which are exempt from Western sanctions, might deteriorate as Ukraine aims to hike tariffs for pumping Russian crude through its territory. Sources say Kyiv aims to almost double transit tariffs to €27.2 ($29.48) per ton starting from April, shortly after increasing tariffs by over 18% starting from January this year, citing growing costs to restore infrastructure damaged in the war with Russia.