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Russia to send most 2023 oil exports to friendly countries after output cut announcement


Russia plans to send most of its 2023 oil exports to non-sanctioning countries, Deputy Prime Minister Alexander Novak said, days after announcing a significant crude production cut from March.

Russia plans to ship 80% of its Russia’s crude oil and condensate exports and 75% of its refined products exports to “friendly” countries, Novak said in a column published in an energy ministry magazine Feb. 13.

“Today, we continue to seek and find new markets,” Novak said, without elaborating on exact volumes planned for export, nor how this would compare to 2022 shipments.

Russia is redirecting oil exports away from the traditional markets in Europe due to Western sanctions introduced in response to Russia’s invasion of Ukraine launched in February 2022.

To mitigate the impact of this lost market share, Russia is significantly increasing oil exports to countries including China, India and Turkey.

In 2022 Russian exports grew by 7.6% to 242 million mt, equivalent to around 4.9 million b/d, Novak said.

Russia estimates that its oil output rose 2% to 535.2 million mt in 2022, equivalent to around 10.75 mil b/d.

Sanctions impact

Analysts expect sanctions introduced in late 2022 and early 2023 to hit oil production and exports, however.

From Dec. 5, an EU embargo on seaborne imports of most Russian crude oil and a $60/b price cap agreed by the G7 and Australia came into force.

Russia responded by banning the sale of oil under price cap conditions.

To date, the restrictions have not had a major impact on Russian crude oil production volumes. Russian output fell 10,000 b/d on the month to 9.85 million b/d in January, according to the latest Platts survey by S&P Global Commodity Insights. That compares with 10.11 million b/d in February 2022.

From Feb. 5, a similar embargo on Russian oil products was introduced alongside price caps of $100/b for imports of Russian products that typically trade at a premium to crude, such as diesel, gasoline and kerosene, and $45/b on products like fuel oil that generally trade at a discount to crude.

The latest sanctions are expected to have a significant impact on production and export volumes in coming months.

On Feb. 10, Novak said that Russia will cut crude oil production by 500,000 b/d in March. Many analysts had already built in a similar cut to their forecasts.
S&P Global said the announcement raises the odds of a near-term US SPR release of 26 million barrels of Congressionally mandated sales in fiscal 2023.

“We do not anticipate Russia voluntarily curtailing more production than dictated by market forces, but the announcement could increase anxiety over near-term supply availability,” S&P Global said in a note released Feb. 10.

Some other analysts see a further cut as possible.

Oil broker and consultancy PVM said there is a dwindling pool of buyers for Russian oil and the situation will be made worse by the struggle to find new markets for its refined products.

“Accordingly, further production cuts cannot be discounted as Russia’s export sales come under further pressure,” PVM said in a note released Feb. 13.

OPEC+ delegates indicated that the group would not immediately respond to Russia’s 500,000 b/d cut, which Novak said is voluntary and was agreed without consultations with partners outside Russia.

One delegate said the decision was a surprise, but does not imply any immediate changes for OPEC+.

“We will be attentive to the evolution of Chinese demand, the global economy and non-OPEC supply before considering any option but not until the next OPEC + meeting,” the delegate said.

S&P Global forecasts a recovery in Russian output of around 250,000 b/d by October if there are no more prohibitive price caps or new Western sanctions.

Domestic supply

Novak said that Russia refined almost 272 million mt in 2022, down 3% on 2021, which is equivalent to around 5.5 million b/d.

“At the same time, due to the modernization of refineries, production of motor gasoline and diesel fuel increased by 4.4% to 42.6 million mt and 6% to 85 million mt, respectively,” Novak said in the column.

He added that supplies to the domestic market were carried out reliably and at prices below inflation.

“Such a result, given the rapid changes in world oil prices, was primarily achieved due to the damping mechanism, which helps to ensure sufficient business profitability while keeping the retail price of fuel at filling stations low,” Novak said.

Source: Platts

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