BOFIT Viikkokatsaus / BOFIT Weekly Review 2022/33
Russian oil production still showed modest growth early this year, but many of Russia’s traditional customers for crude oil reduced their purchases after the Ukraine invasion. The drop in export demand, in turn, led to oil production cuts in April (BOFIT Weekly 21/2022). International organisations estimate that Russian oil production has rebounded to near pre-war levels this summer.
The International Energy Agency (IEA) reports that Russian crude oil production averaged 10.5 million barrels a day (mb/d) in 2021. Roughly 4.7 mb/d of crude oil was exported, while 2.8 mb/d was exported in the form of petroleum products. The EU is Russia’s biggest export market for both crude oil and petroleum products. The IEA says that Russian oil exports to the EU, UK, US, Japan and Korea have contracted by about 2.2 mb/d since the Ukraine invasion. About two-thirds (1.5 mb/d) has found new buyers (mostly in India, China and Turkey). In total, Russian oil exports have declined by about 0.6 mb/d. The tanker tracking analysis from CREA also indicates that Russian oil exports have declined sharply since the invasion.
The IEA estimates that EU import bans that will be in effect at the start of next year should leave Russia with about 1.3 mb/d of crude oil and 1 mb/d of petroleum products to be sold on markets outside sanctions regimes. Due to the logistical challenges in serving new markets, it is impossible for Russia to reroute the entire volume of exports. Thus, the IEA expects Russian oil production to contract sharply next year. OPEC estimates are more circumspect. They see Russian oil production rising by 1 % this year and contracting by only about 3 % next year. The OPEC forecast also adds a caveat that its estimate contains considerable uncertainty.
About 80 % of Russian oil is exported by sea. For this reason, the ban on insuring ships that transport Russian oil that the EU and UK are currently negotiating, could have huge impact on Russian oil exports globally.