Classified data on oil production and exports appearing in the public domain look rather strange. On the one hand, officially Moscow is talking about a voluntary reduction in oil production by half a million barrels per day. On the other hand, unofficial data speaks of an increase in the commissioning of new oil wells in Russia and a record export of crude oil. Why is the information so different and who to trust?
The commissioning of new oil wells in Russia in April 2023 increased by 16.5% compared to April 2022 and amounted to 627 wells. This was reported to Vedomosti by two sources familiar with the statistics of the Ministry of Energy. In the first four months of the year, the commissioning of oil wells in Russia increased by 11% year-on-year to 2,628. They were mainly introduced by VINKs (vertically integrated oil companies), which include such companies as Rosneft, Lukoil, Gazprom Neft, Tatneft, Surgutneftegaz and others.
Well growth statistics are surprising because Russia announced a voluntary cut in oil production from March, and then confirmed this decision as part of the OPEC + decision until the end of the year. Moreover, Deputy Prime Minister Alexander Novak said that Russia has already fulfilled its obligation.
According to him, in April Russia has already reduced oil production (without condensate) to the level it promised – by 500,000 barrels per day compared to February. According to OPEC, in February Russia produced 10 million barrels of oil per day (without condensate), which means that in April production amounted to 9.5 million barrels. How does the decline in production compare with the increase in the number of wells or with the constant reports of Western media about record volumes of Russian oil exports?
Russia stopped publishing oil and gas statistics last year amid sanctions imposed, among other things, on an industry that is so important to the treasury. And, on the one hand, this position is justified and understandable. On the other hand, the lack of information creates a fertile field for speculation or direct manipulation and disinformation. It is not surprising that Western media are distrusting that Russia is really cutting production, and even accusing Moscow of lying and deceiving the world and OPEC + members.
“The growth of oil wells does not necessarily mean that production should also increase, because wells can be different. Now the statistics are closed, and without it it is extremely difficult to talk about what exactly is happening. But if we trust Novak’s data that Russian oilmen have already reduced oil production by 500 thousand barrels per day, then one version can be put forward,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund.
According to him, international service companies have left Russia, which specialize mainly in technologically complex operations – multi-stage fracturing, multilateral drilling, and so on. “International service companies worked mainly on difficult sites here. Since they left, it can be assumed that some of the technologically complex operations have become unavailable, and now we have to maintain production volumes in simpler ways – we have to drill more wells,” says Igor Yushkov.
In exactly the same way, when data comes in about the growth of crude oil exports, this is not necessarily due to the growth of its domestic production. Here it is important to understand how the ratio of crude oil consumption in the domestic market and sending crude oil for domestic processing, that is, to refineries, as well as the export of petroleum products, has changed.
“In normal years, we typically produced 550 million tons of crude oil. Approximately half was exported in its raw form, and the second half of the produced oil was processed. We left only 90 million tons of oil products received for the domestic market, and we also exported everything else, only in the form of oil products: naphtha, gasoline, but above all, diesel and fuel oil.
Now we do not know how much diesel and fuel oil is produced in Russia. But the growth of crude oil exports may well occur due to a reduction in refining and exports of petroleum products,” says Yushkov.
According to him, the reduction in oil refining in May is quite logical, since many refineries in Russia during this period stop for preventive maintenance work. Deliveries to the domestic market cannot be reduced, otherwise there will be a shortage and prices will rise, so we have to reduce export deliveries.
Yesterday Novak held a meeting on the situation on the oil products market. The Deputy Prime Minister instructed manufacturers to ensure equal sales of gasoline and diesel on the exchange market in order to fully cover the needs of the domestic market, including independent filling stations. The Ministry of Energy is even considering the option of limiting the export of gasoline if it is necessary to stabilize prices within the country.
If Russian refineries began to accept less crude oil for processing, it is logical to send the released volumes of crude oil for export. Moreover, there is a demand for Russian oil, given that deliveries by sea are breaking all records. Because it is Europe that has cut itself off from Russian oil, while other countries are ready to buy it, especially at a discount, increasing their margins during its processing.
On the other hand, it can be stated that Russian oil has become completely independent of the Europeans and sanctions.
“And where to go if the Europeans themselves have banned the supply of oil and oil products from Russia by sea. Everything that went by sea to Europe is redirected to non-European markets. This is primarily Asia and Turkey, which buys a lot of finished petroleum products, the Middle East, which buys a lot of fuel oil, and now diesel. Crude oil is bought mainly by China and India,” says Yushkov.
Reuters recently reported that Saudi Arabia’s imports of diesel fuel from Russia reached a record high. Riyadh sells cheap fuel purchased from Russia mainly to Singapore with a large margin, making good money on this. Such schemes can appear, in fact, many and different. Earlier, Bloomberg wrote that Singapore began to buy a lot of Russian oil, which mixes Russian oil with other oil and resells it to other countries at higher prices. Not surprisingly, the demand for sanctioned oil from Russia is huge. And this, in turn, leads to a decrease in the discount on our oil.
This became possible thanks to the creation of a whole “shadow” fleet for the transportation of Russian oil and oil products. It is growing at the expense of old European tankers – for example, Greek and Indian ones. Greek companies used to be the main carriers of our oil. When they were deprived of their usual business, they easily reoriented to a new one, albeit a “shadow one”. Others simply sold their old tankers, which became unnecessary due to the termination of work with Russia, and the new owners created their own business. The logic here is banal: you can earn more money by transporting sanctioned oil. In addition, before the entire transportation market was occupied by Europeans, there was nowhere for others to squeeze through, but now such an opportunity has appeared – and many have seized on it.
“We continue to supply crude oil to Europe only through a pipeline to Hungary, Slovakia and the Czech Republic and in transit to Serbia. And for oil products, small rail deliveries remain, but basically this is a trifle”, concludes the interlocutor.
Olga Samofalova, VIEW
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