Due to the extension of Russia’s May-June production quota through July, there will be another 700,000 b/d decrease in Russian crude exports that will jolt the global crude market, according to ESAI Energy’s newly published CIS Watch Crude. While Russia’s commitment to extend the quota through July signals some short-term continuity, the combination of the extension and recovering domestic throughput means exports will drop from 4.4 million b/d in May-June to 3.7 million b/d in July. The biggest impact will be in Europe, where seaborne Urals trade, normally 2 million b/d, could fall to one-third that amount.
ESAI Energy’s new report describes short-term developments affecting Russia’s crude balance and exports. Russia managed to come within 120,000 b/d of fully complying with its OPEC+ production quota in May, producing just shy of 9.4 million b/d of crude and condensate, 2 million b/d less than in April. Meanwhile, domestic refiners cut runs by 1 million b/d. Consequently, exports only fell 800,000 b/d in May, averaging nearly 4.4 million b/d. Moving forward, recovering gasoline demand and depleted stocks of that product have oil refiners scrambling to increase gasoline production. In June, oil companies can juggle crude inventories and manage to both sustain crude exports and increase gasoline production. By July, however, the combination of recovering domestic throughput and the extension of the production quota will cause crude exports to fall another 700,000 b/d.
“The extension through July will finally cause the decrease in Russian crude exports to be commensurate with the production cut,” explains ESAI Energy Principal Andrew Reed. “In the May-June time frame, weaker domestic product demand is enabling oil companies to juggle crude allocations and stocks to prop up crude exports and protect market share. Oil companies will be unable to carry over the juggling act in to July though.”