Russia’s Crude Exports Still Show Little Sign of Production Cuts

Shipments remain close to 3.4 million barrels a day for a second week

(Bloomberg) — Russia’s crude oil exports are showing no sign of dropping, even as the government says output has been cut.

Flows from Russian ports were virtually unchanged after the previous week’s recovery, averaging 3.4 million barrels a day, according to tanker-tracking data compiled by Bloomberg. Strong demand from Russia’s remaining buyers — mostly confined to China, India and Turkey — helped volumes hit a new high on a four-week average basis.

Seaborne exports still aren’t reflecting a production cut that Moscow’s energy ministry said was as big as 700,000 barrels a day in March. It doesn’t appear that refinery runs in Russia have dropped much either. The latest figures show processing rates remain virtually unchanged from the start of the year and, up to April 19, were 720,000 barrels a day higher than the same full month last year.

The output reduction, which was scheduled to begin in March, ought to have started to show up in export figures by now, but it hasn’t. Russia has relatively little storage capacity that it can use as a buffer against a production cut. With most of the tanks required for the normal operation of the country’s vast pipeline network, it’s unlikely that exports have been maintained by draws from storage tanks.

The diversion of crude previously delivered to Poland and Germany through the Druzhba pipeline has boosted seaborne flows during the early part of this year to an average of 3.32 million barrels a day, compared with 2.94 million barrels a day during the equivalent period at the end of 2022. Flows to Germany halted at the end of 2022 and deliveries to Poland were stopped in late February. Poland’s state-controlled oil refiner PKN Orlen SA has terminated its last contract with a Russian supplier in response to the halt in oil shipments via Druzhba.

Russia’s Lifelines

The combined volume of crude on vessels heading to China and India plus smaller flows to Turkey and quantities on ships that haven’t yet shown a final destination rose for a second week to reach a record 3.35 million barrels a day in the latest four-week period. 

As the ultimate destinations of cargoes loading in late January became apparent, flows to China rose to new post-invasion highs, and remained close to those levels in February. Historical patterns suggest that most of the vessels currently identified as “Unknown Asia” destinations and heading for the Suez Canal will end up in India, while those loaded onto very large crude carriers off the north coast of Morocco or, more recently, in the Atlantic Ocean, will head to China.

Ship-to-ship transfer operations into very large crude carriers appear to be shifting to the Atlantic Ocean from the Mediterranean waters off the Spanish north African city of Ceuta, as they did last summer.

The Aframax tanker Volans has moved its cargo onto the VLCC Scorpius north of the Cape Verde islands, while the Nurkez appeared to be lining up to begin a transfer into the Eliza II on Sunday.

More than 60 cargoes have been transferred between ships in those two locations and off the Greek coast near Kalamata since the start of the year.

Russia and India are discussing the creation of joint re-insurance institutes for oil shipments, according to Russian Deputy Prime Minister Denis Manturov, who didn’t rule out that such organizations may appear by the end of the year. Deputy Prime Minister Alexander Novak said last month that Russia needs new insurance and reinsurance mechanisms for its oil exports.

Until recently, the country was still relying on Western insurers to cover more than half of the tanker fleet that exports its oil. But one of the oil tanker companies heavily involved in moving Russian oil has lost industry standard insurance for its fleet after falling foul of a Group of Seven price cap relating to the transportation of the nation’s barrels.

Crude Flows by Destination

Crude flows in the week to April 21 slipped by about 35,000 barrels a day from the previous week, to 3.4 million barrels a day. On a four-week average basis, overall seaborne exports increased by 72,000 barrels a day to 3.46 million barrels a day, their highest in 10 months.

Volatile weekly data are affected by the scheduling of tankers and loading delays caused by bad weather. Port maintenance can also disrupt exports for several days at a time. 

All figures exclude cargoes identified as Kazakhstan’s KEBCO grade. Those are shipments made by KazTransoil JSC that transit Russia for export through the Baltic ports of Ust-Luga and Novorossiysk.

The Kazakh barrels are blended with crude of Russian origin to create a uniform export grade. Since Russia’s invasion of Ukraine, Kazakhstan has rebranded its cargoes to distinguish them from those shipped by Russian companies. Transit crude is specifically exempted from European Union sanctions.

  • Asia

Four-week average shipments to Russia’s Asian customers, plus those on vessels showing no final destination, rose to an all-time high of 3.28 million barrels a day in the period to April 21. That’s 100,000 barrels a day above the previous high set in the period to March 31.

While the volumes heading to China and India appear to have declined from recent highs, history shows that most of the cargoes on ships without an initial destination eventually end up in one or other of those countries.

The equivalent of 580,000 barrels a day was on vessels showing destinations as either Port Said or Suez in Egypt, or which already have been or are expected to be transferred from one ship to another off the South Korean port of Yeosu. Those voyages typically end at ports in India or China and show up in the chart below as “Unknown Asia” until a final destination becomes apparent.

The “Other Unknown” volumes, running at 334,000 barrels a day in the four weeks to April 21, are those on tankers showing a destination of Ceuta, Kalamata or no destination at all. Most of those cargoes go on to transit the Suez Canal, but some could end up in Turkey. An increasing number are being transferred from one vessel to another in the Mediterranean for onward journeys to Asia.

  • Europe

Russia’s seaborne crude exports to European countries were stable at 83,000 barrels a day in the 28 days to April 21, with Bulgaria the sole destination. These figures do not include shipments to Turkey.

A market that consumed more than 1.5 million barrels a day of short-haul crude, coming from export terminals in the Baltic, Black Sea and Arctic has been lost almost completely, to be replaced by long-haul destinations in Asia that are much more costly and time-consuming to serve.

No Russian crude was shipped to northern European countries in the four weeks to April 21.

Exports to Turkey, Russia’s only remaining Mediterranean customer, fell to 104,000 barrels a day in the four weeks to April 21, the lowest in five weeks.

Flows to Bulgaria, now Russia’s only Black Sea market for crude, remained stable at 83,000 barrels a day for a third week.

Flows by Export Location

Aggregate flows of Russian crude were virtually unchanged in the seven days to April 21, slipping by about 35,000 barrels a day. Lower shipments from the Black Sea and Arctic were almost entirely offset by increases from the Baltic and Pacific.

Figures exclude volumes from Ust-Luga and Novorossiysk identified as Kazakhstan’s KEBCO grade.

Export Revenue

Inflows to the Kremlin’s war chest from its crude-export duty edged lower, dropping by $500,000 to $46 million in the seven days to April 26, while four-week average income rose by $1 million to $47 million.

President Vladimir Putin has signed into law amendments to the way Russia’s oil price is assessed for tax purposes. From April, rates of mineral extraction tax and profit-based tax on oil companies are calculated using a decreasing discount to prevailing Brent prices, rather than assessments of Urals crude. Export duty, which will be phased out at the end of 2023, is not initially affected by the change. However, Russia’s Finance Ministry has now proposed to unify the approach by applying the same mechanism to export duty from June. This will see taxes based on a reference export price set $28 a barrel below Brent, with the discount falling to $25 in July and remaining at that level until the end of the year.

The duty rate for April is set at $1.95 a barrel, little changed from March, based on a Urals price of $50.80 a barrel during the assessment period that ran from Feb. 15 to March 14. The rate for May will be $1.96 a barrel, based on a Urals price of $51.15 a barrel between March 15 and April 14.

Origin-to-Location Flows

The following charts show the number of ships leaving each export terminal and the destinations of crude cargoes from the four export regions.

A total of 32 tankers loaded 23.8 million barrels of Russian crude in the week to April 21, vessel-tracking data and port agent reports show. That’s down by 230,000 barrels, or 1%, leaving volumes little changed from the previous week. Destinations are based on where vessels signal they are heading at the time of writing, and some will almost certainly change as voyages progress. All figures exclude cargoes identified as Kazakhstan’s KEBCO grade.

The total volume on ships loading Russian crude from Baltic terminals rose to a three-week high of 1.67 million barrels a day.

Shipments of Russian crude from Novorossiysk in the Black Sea slumped to a seven-week low, with flows falling to 313,000 barrels a day. A similar volume of Kazakhstani crude was loaded at the port during the week.

Arctic shipments fell back to 286,000 barrels a day after the previous week’s jump, with two Suezmax tankers loading in the week to April 21.

Flows from the Pacific rebounded to a three-week high, with eleven tankers loading at the region’s three export terminals in the week to April 21, up from eight the previous week.

Six cargoes of ESPO crude out of seven loaded during the week are on vessels heading to China. The other is showing its destination as Tanjung Pelepas in Malaysia. Previous cargoes heading there from Kozmino have eventually gone on to India.

The remaining volumes heading to unknown destinations are Sokol cargoes that recently have been transferred to other vessels at Yeosu, or are currently being shuttled to an area off the South Korean port from the loading terminal at De Kastri. Most of these are also ending up in India.

Note: This story forms part of a regular weekly series tracking shipments of crude from Russian export terminals and the export duty revenues earned from them by the Russian government.

Note: All figures exclude cargoes owned by Kazakhstan’s KazTransOil JSC, which transit Russia and are shipped from Novorossiysk and Ust-Luga as KEBCO grade crude.

Note: The next update of this story will be published on Tuesday May 2.

–With assistance from Sherry Su.

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