Russia’s crude oil production plunged by almost 9 percent in April to average just 9.16 million barrels per day (bpd), more than 1 million below the country’s quota in the OPEC+ deal, Reuters reported on Tuesday, quoting an internal report of OPEC+ secondary sources it had seen.
The estimated 9.16 million bpd crude production for last month compares to a 10.436 million bpd quota Russia had for April under the OPEC+ agreement. This suggests that Russia was already 1.276 million bpd short of its quota last month, and losses are likely to mount as of May.
The entire OPEC+ group pumped a massive 2.6 million bpd below its target in April, the OPEC+ assessment seen by Reuters showed.
Russian producers have started to shut in some wells as buyers in the West are increasingly shunning Russian crude and preparing to comply with whatever sanctions the EU would step up against Moscow over Putin’s invasion of Ukraine.
As a result, Russia’s oil production is already falling and will continue dropping in the coming months and years as Moscow will not be able to redirect to China and India all the volumes it is losing in Europe—its biggest oil market before the invasion of Ukraine.
Restrictions, combined with the lack of access to Western technology to pump harder-to-recover oil and enhance production from maturing wells will hit Russia’s oil industry not only in the near term but also in the long term, analysts say.
Russia itself has admitted that its oil production could drop by 17 percent this year due to the sanctions, TASS news agency reported, citing Finance Minister Anton Siluanov. In April alone, oil production fell by 9 percent from March.
In the closely watched Oil Market Report last week, the International Energy Agency (IEA) estimated that Russia already shut in nearly 1 million bpd in April, driving down global oil supply by 710,000 bpd to 98.1 million bpd.
So far, Russian exports have held up, but as of May 15, the major international trading houses had to halt all transactions with state-controlled Rosneft, Gazprom Neft, and Transneft, the agency noted.
“Following a supply decline of nearly 1 mb/d in April, losses could expand to around 3 mb/d during the second half of the year,” the IEA said, referring to Russia’s oil supply.
By Tsvetana Paraskova for Oilprice.com
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Moreover, Mr Novak said that Russia’s oil production in May has been on the rise averaging 10.28 mbd, a mere 156,000 b/d short of its OPEC+ production quota.
The author made more unsubstantiated claims about Russian producers shutting some wells as buyers in the West are increasingly shunning Russian crude. If this was true we would have seen Brent crude starting to head towards $140-$150 a barrel. Prices don’t lie.
Another unsubstantiated claim is that Russia won’t be able to redirect to China and India all the volumes it is losing in Europe but Russia hasn’t yet lost any oil exports in Europe. Moreover, China and India are buying huge volumes of Russian gas and will continue to do that particularly that China is ending the lockdown in the Shanghai region. They could buy the entire Russian oil exports with a decent discount which Russia can easily afford and ishappy to offer in these exceptional circumstances.
The claim by the International Energy Agency (IEA) that Russian oil production is projected to decline by 3.0 mbd during the second half of the year is a deliberate a lie like its ludicrous and ignorant estimate yesterday that an EU oil embargo could cause Russian production to drop by 9.6 mbd.
An embargo isn’t a forgone conclusion. Hungary could still sink it.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London