PARIS – Western pressure on Russia over the Ukrainian invasion reduced crude oil production in the country by 9% in April and changed the global oil market as Russia seeks new buyers for its production outside the West, the International Energy Agency said.
Russia’s lost supplies amounted to 900,000 barrels per day in April and are expected to increase by another 600,000 barrels per day this month – a total of about 1.5% of world oil production when the invasion began. The oil embargo, which the European Union is considering, Russia’s largest oil destination, is likely to increase those losses to as much as 3 million barrels a day since July, bringing Russian oil production to its lowest level in nearly two decades, the IEA said. in its monthly report on Thursday.
The West’s response to the Russian invasion shattered the global oil market and hit Russia hard. European energy buyers have given up Russian diesel and other refined products, forcing Russian refineries to cut production and cut crude oil purchases, the IEA said. India and Turkey have stepped in to become big buyers of Russian oil, allowing Russian exports to remain stable this year. But that was not enough to offset Russia’s declining domestic demand for crude oil and the end of exports to the United States and the United Kingdom, which imposed sanctions on Russian oil.
The EU has reduced its purchases of Russian crude oil and petroleum products by about 15% since before the invasion, according to the IEA. The bloc fears that it will sanction Russian oil because of its deep dependence on Russian energy supplies. Hungary opposes the oil sanctions plan being discussed in the bloc because it and other Eastern European countries import most of their crude oil through a Soviet-era pipeline linked to Russia.
Although the IEA still expects a significant decline in Russian oil production, its forecasts for lost Russian oil production are narrowing. The IEA said in a previous report that it expects the quantity to reach 3 million barrels per day by the current month. This amount is now expected to be reached in July.
Russian oil exports resumed in April after falling the previous month when the first Western sanctions took effect, the IEA said. Russia’s oil exports rose 620,000 barrels a day to 8.1 million barrels a day, close to pre-war levels. While oil supplies to the EU, the US and the UK fell by around 1.2 million barrels per day, cargo to India and Turkey jumped by 730,000 barrels per day and 180,000 barrels per day, respectively.
“They were much more effective than many of us thought they would be. They were able to find these one-off deals with tanker companies that are still ready to work with them, “said Rebecca Babin, senior energy trader at CIBC Private Wealth.
However, the threat of new measures and sanctions against Russia’s state-owned company Rosneft Oil Co., due to take effect on May 15, means a bleak prospect for Russia’s oil exports, she said. “I do not think this is a story that is getting better for Russia. It will get worse. “
Europe’s decision to cut purchases of Russian oil products poses a greater challenge to the country’s oil industry, said Toril Bozoni, head of the IEA’s oil markets division. Diesel and other refined products are not usually transported long distances, unlike crude oil, which is often moved around the world by tanker.
“The Russians are struggling to find buyers for the products,” Ms Bozoni said. “They refine much less at home and domestic demand is also lower.”
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Russia’s declining production, coupled with limited supply from members of the Organization of the Petroleum Exporting Countries, keeps the oil market in short supply, a dynamic analysts expect to keep energy prices high and increase tensions in the global economy.
The IEA has lowered its forecast for global oil supplies this year by 100,000 barrels per day to 99.2 million barrels per day. Total oil demand is expected to reach 99.4 million barrels.
However, lost supplies from Russia are partially balanced by declining demand. The explosion of Covid-19 in China and strict quarantine in Beijing have reduced global appetite for crude oil. Signs of weakening economic growth are also expected to reduce oil demand.
The IEA expects oil demand to grow by 1.9 million barrels per day and 1.2 million barrels per day in the second and third quarters of the year, respectively. That’s 200,000 barrels a day less for each quarter than last month. In the fourth quarter, the IEA expects oil demand to shrink by 200,000 barrels a day.
A key question for the rest of the year is whether the Russian oil industry can continue to produce as before without technical support from major Western oil companies, which have largely withdrawn from the country. Western countries have also banned the sale of equipment to Russia’s energy industry, putting pressure on the country’s aging energy infrastructure.
“We don’t think this will have an immediate impact on supplies,” Ms Bozoni said. “The Russians have a lot of technology and know-how.”
Separately, on Thursday OPEC lowered its forecasts for oil demand for the second consecutive month. The cartel said it expects demand for 100.2 million barrels of crude oil a day this year. That’s 210,000 barrels a day less than expected last month.
The group, which sees Russia as an ally, cut nearly 800,000 barrels a day from its forecast for rising demand after the war in Ukraine.
OPEC said Russian oil production this year would be approximately 10.9 million barrels a day, a more optimistic estimate than the IEA, but still 350,000 barrels a day less than forecast in April.
Earlier this month, OPEC and a group of allies, including Russia, agreed to increase oil production by approximately 430,000 barrels a day – in line with what the group known as OPEC + has already agreed.
OPEC delegates said the IEA’s conclusions that Russian production was falling sharply would not lead to an immediate change in the cartel’s course because Moscow’s exports remained stable and the agency concluded that markets could withstand oil sanctions against the Kremlin. OPEC + has an agreement to continue slowly reversing production cuts in 2022, a decision confirmed earlier this month.
Russia’s maritime exports rose 490,000 barrels a day to 3.9 million barrels a day in April due to a spike in supplies to India, according to commodity intelligence company Kpler. With huge discounts of up to $ 40 a barrel a day on international prices, Russia “can simply focus on maximizing volumes to prove that sanctions have failed,” said an OPEC delegate.
– Benoit Focon from London contributed to this article.
Write to Matthew Dalton at Matthew.Dalton@wsj.com and to Will Horner at William.Horner@wsj.com
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