An EU embargo on Russian oil will affect the country’s exports of crude oil – a cornerstone of the country’s economy – but may not do much harm until the restrictions actually start.
Analysts say Russian oil production is currently proving resilient as European buyers and others take advantage of the opportunity to buy crude at a discount of around $30 a barrel from Brent crude, the international standard.
Kpler, which tracks oil shipments, estimates that Russian oil production actually rose by about 200,000 barrels per day in May, to 10.2 million barrels per day, compared to April. However, this was below February levels by about 800,000 barrels per day.
Kpler predicts that if the European Union comes to an agreement on the ban, Russian production will drop another 1 million barrels per day, or about 10%, once the restrictions are in place. The economic downturn will achieve what many analysts expect Extensive erosion in the Russian energy industry In the coming years, with the withdrawal of major oil companies from the country and the imposition of sanctions on imports of Western technology.
The recent increase in production occurred as Russian refineries increased their production after regular maintenance, and buyers lost some of their wariness about dealing with Russian oil.
“Buyers are used to dealing with Russian shipments,” said Victor Katona, an analyst at Kpler.
Russian exports to the European Union by sea, for example, fell by about 440,000 barrels per day from February to March, but have remained relatively flat since then at around 1.2 million barrels per day. Italy has been a big buyer, consuming about 400,000 barrels per day, although about a quarter of that oil is shipped to Central Europe via Trieste.
Kpler estimates that an average of about 600,000 barrels per day of oil flowed through a pipeline from Russia in May to countries such as Hungary, Slovakia, Poland and Germany.
Hungarian oil company, MOL, said earlier this month that its profits from refining had “rose sharply” due to the discount on Russia’s Urals crude. The Hungarian government lobbied against sanctions on Russian oil, arguing that as a landlocked country it had no choice but to rely on pipeline shipments from Russia.
In the meantime, buyers are likely to stock up on cheap oil. India bailed out Russia, buying more than 700,000 barrels per day in May.