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As a result of the war in Ukraine and the sanctions applied by Western countries, crude oil production in Russia – one of the three main producers in the world together with Saudi Arabia and the United States – plummeted in April when it had remained fairly stable in March. , after the invasion of Ukraine decided by President Vladimir Putin. “Much less crude has been refined due to weak exports of petroleum products and falling domestic demand in the wake of Western sanctions.”indicates the International Energy Agency (IEA), in its monthly report published this Thursday.
The agency estimates the drop in the production of crude oil, condensates and NGL (natural gas liquids) at 960,000 barrels per day in one month, which fell to 10.4 million barrels per day (mb/d). This is the lowest level since November 2020. For crude oil production alone, the drop is 900,000 b/d to return to 9.1 mb/d, that is, 1.3 mb/d less than the quota of production granted under the OPEC+ agreement.
Rosneft, the most affected company
According to the IEA, Rosneft, the main Russian oil company, was the most affected by this drop in production. To this is added the production interrupted by the withdrawal of foreign companies, such as Exxon Mobil, which under the pressure of sanctions is seriously affecting its production of 300,000 b/d in the Sakhalin-1 field, pending its total withdrawal. from the country. .
The effects of the sanctions -despite the fact that the European Union has been discussing an embargo on Russian oil imports for weeks without reaching an agreement- added to the lack of storage capacity that forces Russian producers to close wells, should cause a new drop in production in April, of 600,000 b/d, IEA experts estimate.
As a whole, since February, Russia has seen its extractions fall by 1.6 mb/d, a level that could reach more than 2 mb/d in June and close to 3 mb/d in July. Finally, production could fall to 9.6 mb/d, its lowest level since 2004, indicates the IEA, which, with caution, recalls that these are estimates that can be modified depending on the evolution of the situation.
This loss of Russian production contributes to the decrease in global crude oil supply by 710,000 b/d, to 98.1 mbd. Some of this is offset by higher supply from OPEC+ producers in the Middle East and the United States, as well as slower global demand growth. Excluding Russia, production is expected to increase by 3.1 mbd in May.
“Crude prices declined 8% month-on-month, due to a weaker Chinese demand outlook driven by Covid-19 lockdowns, coordinated actions on the use of strategic inventories, and a strong dollar appreciation and higher interest rates. ”OPEC experts point out in their latest monthly report, published on Thursday, stressing that market fundamentals show that supply remains tight as we approach the summer season, which corresponds to a peak in fuel demand .
Low inventory levels
This perception is also reinforced by the situation in world stock markets. The IEA indicates that global stocks fell 45 million barrels in March, and are 1.2 million barrels below their June 2020 level. For OECD countries alone, the market placement of 24.7 million barrels drawn from government inventories has halted the rapid decline in industrial production. stocks. The latter, only in the OECD countries, increased by 3 million barrels to reach 2,626 million barrels. However, they remain 299 million barrels below their average for the last five years.
Even more critical is the situation of refined oil products, especially diesel, whose stocks have fallen to very low levels. Those of middle distillates fell to their lowest levels since April 2008. The agency reports that shortages are beginning to reduce shipping in several African countries, with the situation most alarming for Yemen and Sri Lanka.
“Limited additional capacity in global refining, as well as reduced exports of heating oil, diesel and naphtha have added to strains in markets for these products, which have seen seven consecutive quarters of inventory drawdowns.”underlines the IEA.
Increase in refining margins
The case of diesel is emblematic. Since their March 2020 lows, prices in Northern Europe have quadrupled (see chart). The Old Continent has a large fleet of diesel vehicles but it has not adapted its refining capacities to meet this specific demand for years, forcing it to depend on imports. However, the first supplier of diesel for Europe is Russia whose market, with the sanctions, is closing.
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Finally, another source of tension, the refineries, particularly in the United States, have favored in recent months the production of kerosene with more attractive margins to meet the demand induced by the resumption of air traffic, which was done to the detriment of the production of diesel. By way of comparison, if we include refining margins, for a barrel of WTI oil in the United States, which was close to $110 on Friday, a barrel of diesel is equivalent to more than $250!
