Russia’s Diving Oil Exports Suggest Output Cut Beginning to Bite

(Bloomberg) — Russia’s plans to cut oil production are finally starting to look like reality, with the nation’s seaborne shipments collapsing last week.

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Flows from Russian ports dropped by 1.24 million barrels a day, the biggest weekly decline since storms hit two export ports in mid-December. That took them below 3 million barrels a day for the first time in eight weeks, according to tanker-tracking data compiled by Bloomberg. It’s important to note that the prior week’s shipments were extraordinarily high, but the less-volatile four-week average also declined.

Moscow pledged to lower output by 500,000 barrels a day from last month through June in response to a Group of Seven price cap on the nation’s crude sales, before extending the duration of the cut until the end of the year as part of a wider move by the OPEC+ producer group. On Friday, the country’s energy ministry said output was cut by 700,000 barrels a day in March — which would suggest that the plunge in seaborne flows might be maintained in the coming weeks.

While the slump in exports may be a first indication of lower production, the weekly data are volatile, with weather-related port closures and the scheduling of tankers both contributing to big swings in volumes from one week to the next. Four-week shipments for the most recent period were still above the average for the year so far.

The pick-up in seaborne flows that was seen at the start of the year, most apparent in the four-week average data, probably reflected the diversion of crude previously delivered to Poland and Germany through the Druzhba pipeline. 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 the Druzhba pipeline.

The loss of those pipeline markets means an additional 500,000 barrels a day of Russian crude is being exported through the country’s ports, despite a European Union ban on imports of almost all of Moscow’s crude and refined fuels and the G7 price cap that together prompted Moscow’s threat to cut output.

A cargo of Russian crude was finally discharged into storage tanks at Ghana’s Tema refinery over the weekend, after the ship carrying it had been moored off the west African port for six weeks.

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 fell back to 3.24 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.

Ship-to-ship transfers of cargoes in the Mediterranean continue apace. This has been most visible off the Spanish north African city of Ceuta and off the Greek coast near Kalamata. At least 57 cargoes have been transferred between ships in those two locations since the start of the year. The volume transferred off the coast of Greece, mostly in the Bay of Lakonikos, fell back in March to 6.4 million barrels, equivalent to 208,000 barrels a day, from a revised 9.7 million barrels in February. That compares with 5.8 million barrels, equivalent to 188,000 barrels a day transferred off Ceuta.

Crude Flows by Destination

Crude flows in the week to April 7 fell by 1.24 million barrels a day from the previous week to an eight-week low of 2.89 million barrels a day. On a four-week average basis, overall seaborne exports dropped by 108,000 barrels a day to 3.34 million barrels a day.

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
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Four-week average shipments to Russia’s Asian customers, plus those on vessels showing no final destination, edged lower, but remained above 3 million barrels a day. Shipments slipped to 3.1 million barrels a day in the period to April 7, compared with 3.18 million barrels a day previously.

While the volumes heading to China and India appear to have declined, 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 576,000 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 472,000 barrels a day in the four weeks to April 7, 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
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Russia’s seaborne crude exports to European countries fell back to 83,000 barrels a day in the 28 days to April 7, 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 7.

Exports to Turkey, Russia’s only remaining Mediterranean customer, were unchanged at 162,000 barrels a day in the four weeks to April 7.

Flows to Bulgaria, now Russia’s only Black Sea market for crude, fell back to 83,000 barrels a day.

Flows by Export Location

Aggregate flows of Russian crude fell sharply in the week to April 7, dropping below 3 million barrels a day for the first time in two months. Shipments were lower from all regions, with the biggest decline in volume terms seen in the Baltic, where flows were down by 520,000 barrels a day from the previous week.

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 fell by $17 million to a five-week low of $39 million in the seven days to April 7, while four-week average income edged lower to $45 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 affected by the change.

The duty rate for April was 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.

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 27 tankers loaded 20.2 million barrels of Russian crude in the week to April 7, vessel-tracking data and port agent reports show. That’s down by 8.7 million barrels, or 30%, more than reversing the previous week’s surge. 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 fell back to 1.36 million barrels a day.

Shipments from Novorossiysk in the Black Sea fell to a five-week low, with flows dropping to 250,000 barrels a day.

Arctic shipments slumped from the previous week’s high, with one Suezmax tanker loading in the week to April 7.

Flows from the Pacific edged lower, with 10 tankers loading at the region’s three export terminals in the week to April 7, down from 11 the previous week.

Two cargoes of ESPO crude out eight loaded during the week are on vessels showing their destination as Singapore. Previous vessels heading there from Kozmino have eventually gone on to India.

The remaining volumes heading to unknown destinations are Sokol cargoes that have recently 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.

–With assistance from Sherry Su.