BOFIT Viikkokatsaus / BOFIT Weekly Review 2022/21

The International Energy Agency (IEA) reports that Russian crude oil output averaged around 10 million barrels a day in the first three months of this year. Russian oil output dropped last month to around 9.1 million barrels a day. When natural gas liquids are included, Russia’s overall oil output in April averaged about 10.3 million barrels a day, a decline of roughly 10 %. Oil refining volumes reportedly declined sharply in March and April.

Deputy prime minister Alexander Novak says that he expects oil production to rise significantly in May and that production levels should further increase in June. Other forecasts are more pessimistic, however. The base scenario in the latest forecast of Russia’s economic development ministry sees oil production contracting by 9 % this year. The IEA estimates that Russian oil production could decline to a level of around a 7 million barrels a day by the end of this year.

If production contracts further in the second half of this year, a recovery to the output levels of 2021 could be difficult. In any case, Western financial sanctions and export bans imposed on Russia will significantly limit investment in the oil sector in coming years.

The contraction in output largely reflects a demand shock to Russian crude. Many Western oil buyers now avoid Russian products, even if the oil trade is not directly subject to sanctions. The crash in demand for Russian crude can be seen in Russian export prices. The average price of Urals crude in April was roughly 30–35 dollars lower than North Sea Brent crude. This price gap has persisted throughout May.

Russian Customs does not release timely data on exports of crude oil or petroleum products. The figures compiled by the Centre for Research on Energy and Clean Air (CREA) show that oil exports from Russian ports contracted sharply in March and April, but the export volumes have been rising in recent weeks. The rebound in exports largely reflects growth in shipments to Asia. Russia’s economic development ministry expects crude oil exports to shrink this year by only about 1 %, while exports of petroleum products could drop by about 20 %.

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