Russia’s Crude Market Juggling Act Over

Due to the extension of Russia’sMay-June production quota through July, there will be another 700,000 b/ddecrease in Russian crude exports that will jolt the global crude market,according to ESAI Energy’s newly published CIS Watch Crude. While Russia’scommitment to extend the quota through July signals some short-term continuity,the combination of the extension and recovering domestic throughput meansexports will drop from 4.4 million b/d in May-June to 3.7 million b/d in July. Thebiggest impact will be in Europe, where seaborne Urals trade, normally 2million b/d, could fall to one-third that amount.

ESAI Energy’s new report describes short-termdevelopments affecting Russia’s crude balance and exports. Russiamanaged to come within 120,000 b/d of fully complying with its OPEC+ productionquota in May, producing just shy of 9.4 million b/d of crude and condensate, 2million b/d less than in April. Meanwhile, domestic refiners cut runs by 1million b/d. Consequently, exports only fell 800,000 b/d in May, averagingnearly 4.4 million b/d. Moving forward, recovering gasoline demand and depletedstocks of that product have oil refiners scrambling to increase gasolineproduction. In June, oil companies can juggle crude inventories and manage toboth sustain crude exports and increase gasoline production. By July, however,the combination of recovering domestic throughput and the extension of theproduction quota will cause crude exports to fall another 700,000 b/d.

“The extension through July will finally cause the decreasein Russian crude exports to be commensurate with the production cut,” explainsESAI Energy Principal Andrew Reed. “In the May-June time frame, weaker domesticproduct demand is enabling oil companies to juggle crude allocations and stocksto prop up crude exports and protect market share. Oil companies will be unableto carry over the juggling act in to July though.”

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