Russia is suddenly exporting much less oil, crimping supplies to the large Asian economies that have come to rely on Moscow for discounted energy supplies since the invasion of Ukraine.
The country’s seaborne crude shipments have slumped to the lowest since January, and are likely to remain near that level through to the end of August. The shift in flows is a mirror image of Russia’s domestic refining rates, which that so far in July are on track to reach a six-month high.
“The sharp drop in July isn’t a one-off event,” said Viktor Kurilov, senior oil markets analyst at consultant Rystad Energy A/S.
Russia’s four-week average seaborne oil exports, which mainly go to India and China, fell to 3.11 million barrels a day as of July 14, down by almost 600,000 barrels a day from their recent peak in April, according to ship-tracking data gathered by Bloomberg.
It’s a significant shift in oil flows, but the redirection in supplies from the Russian ports is manageable for the buyers like India and China.
Even though those two countries together purchase more than 80% Russian seaborne crude exports, the missing barrels represent only a fraction of daily consumption in Asian markets, and supplies exist elsewhere to fill the gap.
Structural Decline
Rystad Energy forecasts Russia’s seaborne crude flows will remain capped at around 2.7 million barrels a day in July and August and rebound to 2.9 million barrels a day only in September, once Russian refineries begin their traditional autumn maintenance. That’s still well below the levels seen in April and May, when the four-week average of daily shipments from ports jumped as high as 3.6 million to 3.7 million barrels as repeated Ukrainian drone attacks shut disrupted domestic refining.
“The levels seen in April or May are not to be repeated in 2024, barring large-scale drone attacks that would debilitate even more refineries than the spring strikes,” said Viktor Katona, lead crude analyst at intelligence firm Kpler. He expects Russia’s seaborne crude supplies to hover near 3 million barrels a day.
Russia’s Energy Ministry didn’t respond to a request for comment.
Sanctions Impact
Since Russia’s invasion of Ukraine, its oil exports have been targeted by several waves of international sanctions. However, the impact of these measures on recent changes in crude flows has been “fairly muted,” according to Katona.
Major shipper Sovcomflot PJSC and some of its vessels as well as several ‘shadow fleet’ tankers have become targets of the US and the EU sanctions earlier this year. These restrictions did cause temporary disruptions in oil supplies to India, the top importer of Russian barrels, which initially refused to take barrels from that company’s vessels.
More recently, India resumed purchases of crude shipped by Sovcomflot tankers, said Katona.
Domestic Fuel
Since last year’s fuel crisis, which required personal involvement from President Vladimir Putin, the Russian government has sought to strike the right balance between exporting crude and refining it at home.
Rystad sees the country processing about 5.5 million barrels a day of crude in July and August, with the level then declining slightly to 5.3 million barrels a day in September. Kpler sees the run rate at 5.7 million barrels a day, close to levels last seen almost a year ago. As the nation raises its domestic processing, diesel exports are set to grow by some 150,000 barrels a day and naphtha by 100,000 barrels a day, Katona said.