Russia increased oil production by about 2% in November, before the EU oil embargo came into force. This means that due to the deferred effect of export restrictions on production, it can reach 530 million tons by the end of the year. According to analysts, oil production in the first quarter of 2023 may fall by 500 thousand barrels (68 thousand tons per day) per day. The most vulnerable to sanctions will be the Arctic export-oriented fields: Prirazlomnoye, Novoportovskoye, Trebsa and Titova.
Production grew steadily in November, including due to the resumption of the Sakhalin-1 project, when the Russian government replaced the American ExxonMobil with Rosneft in October. However, the production level of February — March, when it reached 1.5 million tons per day, is yet to be reached.
Since the beginning of the year Russia produced about 489 million tons of oil. Maintaining the current level of production, by the end of the year oil production in Russia will likely approach 535 million tons (in 2021 it amounted to 524 million tons).
The growth of production in February—March was interrupted by US and EU sanctions. As a result, foreign buyers of Russian oil and petroleum products began to refuse cargo due to reputational and sanctions risks, and already in April the Russian oil industry experienced the largest decline in production this year — up to 1.37 million tons per day. Gradually, Russia began to reorient oil supplies to the Asian market, primarily to India.
On December 5, the EU embargo on offshore shipments of Russian oil came into force, but European countries began to phase down purchases in advance. Exports by sea and oil pipelines to non-CIS countries in November decreased by about 4%, reaching about 615 thousand tons per day. In conditions of export restrictions, Russian oil companies in November increased primary oil refining by 2%, reaching 785 thousand tons per day. Processing is growing despite a seasonal reduction in fuel demand in Russia and a decrease in damping payments, which decreased for gasoline and diesel fuel in November by 56% and 29%, to 4.1 thousand and 18.3 thousand rubles per ton, respectively.
Another challenge that can result in export reduction and then oil production is the introduction of price cap on Russian oil by the G7 countries that is set at $60 per barrel. As Russian Deputy Prime Minister Alexander Novak assured, Russia will not sell oil to countries that support the price cap. According to JP Morgan estimates, the effect of restrictions on oil exports will lead to a decrease in oil production in Russia by 500 thousand barrels per day (68 thousand tons per day) in the first quarter of 2023.
Source — Kommersant
