Russia without oil. Will the aggressor reduce oil production and how will this affect the Kremlin’s finances?

In line with its commitments to OPEC+, the Russian government ordered companies to reduce oil production in the second quarter to 9 million barrels per day by the end of June. This is news reported by Reuters based on its own sources.

It is known that Russia sets specific targets for reducing production for each company. They also note that production cuts will contribute to a seasonal peak in maintenance work at refineries, many of which have already cut fuel production as a result of blackouts and drone attacks.

Russian Deputy Prime Minister Alexander Novak said that Russia’s oil production at the end of February 2024 was 9.5 million barrels per day.

Oil production in Russia will decrease by approximately 3.6%, 4.1% and 4.9% in April, May and June, respectively, compared to March Reuters writes, and in accordance with Russia’s promise to voluntarily reduce production. Novak said that Russia will reduce production by 350 thousand barrels per day in April, and exports will decrease by 121 thousand barrels per day compared to March. In May, production will be reduced by 400 thousand barrels per day and exports will be reduced by 71 thousand barrels per day.

Will attacks on refineries cause a decline in Russia’s oil exports?

as described Focus Energy Research Institute expert Yuri Korolchuk describes the strategy of encouraging further increases in oil prices, as well as obligations to OPEC+, because the less they are, the greater the demand and price, These are the main reasons for the decrease in Russian oil production. The impact of drone attacks on Russian oil refineries is not as significant as it seems.

“The story of the UAV attacks is interesting for many people. First of all, it is accepted that these were Ukrainian attacks. But how much damage they caused is another question. In the Russian Federation, there is an agreement to reduce oil by 5% within the scope of OPEC +. So everything is going as planned there. I don’t think this is linked to reducing oil consumption by refineries. Russian oil refineries produce approximately 270-280 million tons of oil products. More than 180 million units are exported. This is average data. Korolchuk announced that there is approximately 100 million tons left for the domestic market.

The expert noted that the production volumes of diesel fuel, which is more popular in world markets, have not changed at all.

“As for diesel fuel, attacks by unmanned aerial vehicles do not affect it at all. After all, there is gasoline and diesel fuel.” Diesel fuel is more popular in world markets and is the main product produced for export. Russians export gasoline, but in small quantities. They do not produce beyond their needs.

It is significant that these attacks target equipment responsible for gasoline production in oil refineries. But this is only a small part of the Russian oil products market. I would also like to point out that the level of damage is unknown. “We don’t know how long the recovery will take,” added Korolchuk.

According to that, Oil refining in the Russian Federation fell by less than 10%. And not just because of drone attacks and suspensions of refinery operations, but also because of planned repairs.

Prices may fall: Will the situation with oil refining in Russia affect the global oil market?

Meanwhile, the Financial Times recently published information in which the United States allegedly called on Ukraine to stop attacks on Russia’s energy infrastructure and warned that drone attacks on Russian oil refineries could lead to a rise in world oil prices and trigger retaliatory measures. Experts deny such an impact of drone attacks on the global oil market.

Sergei Kuyun, Director of A-95 Consulting Group, thinks: Attacks on Russian refineries cannot destabilize global oil and oil products market. According to him, if the Russian Federation’s exports of oil products fall, more Russian oil will go to the market, which means prices for raw materials will fall.

“The Russians export very little gasoline (because they consume most of it themselves), so it will have no impact on the market of this product, which is most worrying for the United States,” he added.

Kuyun noted that the price of diesel fuel, the main export item of the aggressor country, is also possible, but this is still an assumption. As a matter of fact, in practice, growth is rapidly replaced by decline as the market is fed by alternative sources.

“According to me, You have to wait until May-June. To understand how many Russian factories will restart and how they will continue their operations. So we’ll find out if this is a one-time effect or if it actually causes a lot of damage.because drones cause less damage than missiles,” added Yuri Korolchuk. According to him, it is too early to say that drone attacks on refineries will lead to catastrophic losses in the Russian Federation. Yes, of course there will be losses: because the Russians no longer produce gasoline and do not process it later they will have to catch up.They have already begun to buy from Belarusian refineries (according to Rosstat, in just one week fuel production fell by 7.4%, so the Kremlin turned to Belarus – Focus). But the volumes there are small; It can reach up to three thousand tons in March. “We are talking about millions of tons, but there are three thousand tons here,” Korolchuk states.

Drones in refineries: What damage was caused to Russian enterprises?

According to Sergei Kuyun, despite this Drone attacks did not collapse the Russian oil refinery and prices at gas stations did not increaseThere are several important indicators of the effectiveness of the work performed.

In particular, we are talking about:

• 4 main oil refinery units with a total monthly capacity of 2.3 million tons were decommissioned. We are talking about the Ryazan oil refinery and the oil refinery in Nizhny Novgorod, one of the most modern.
• A decrease in the production of light oil products by at least 1.7 million tons per month and a market value of approximately 1.5 billion dollars.

And although the scale of the destruction of the refinery is unknown, according to Kuyun, in any case the Russians will spend hundreds of millions of dollars in losses just for their restoration.

“There is information that other facilities have also been damaged, as the block principle is applied in modern refineries, where different facilities are located locally close to each other. Such repairs can take months,” Kuyun added.

What about sanctions? What could weaken the Russian oil refining industry?

As experts note, the Russians have problems restoring oil refineries due to sanctions, but they cannot stop oil trade.

“Russians do not have time to import the equipment necessary for repairs. But there are “gray” imports from third countries. As for trade with other countries, the Russian Federation does not stand still. After all, the oil, coal and gas markets exist by inertia, it is impossible to change it at once, oil is transferred to the Russian Federation’ It has to be taken from someone to get it from somewhere else, not from, which means other countries and consumers will have problems. We find a new field, drill a well and start pumping oil ourselves, but this will take decades. Remember also that each mine and well is unique “It has a consumer. This is business, money, employment. Every ton of oil has a consumer, no consumer – no oil,” says Yuri Korolchuk.

Important

Note that after the imposition of international sanctions, Russia became India’s main supplier of crude oil. Moscow exported approximately $37 billion worth of oil to the Asian country in 2023; This was a record figure for him. This information is provided by CNN, referencing an analysis by the Center for Research on Energy and Clean Air (CREA).

They say the United States plays an important role in this plan. In 2023, the United States became the largest buyer of oil products produced from Russian oil from India. From the beginning of December 2022 to the end of 2023, they purchased $1.3 billion worth of oil products. CREA’s estimates are based on publicly available transportation and energy data.

The total export value of these oil products increases significantly when US allies imposing sanctions on Russia are taken into account. According to CREA, In 2023, these countries imported $9.1 billion worth of oil products made from Russian oil; This is approximately 44% more than the previous year..

Theoretically, this is illegal because oil products processed outside the Russian Federation are not subject to sanctions. At the same time, US officials are trying to close this gap by imposing sanctions on ships belonging to the Russian “shadow fleet” supplying oil to India.

“Only an approximate calculation can be made about the shadow fleet, the mixing of oil at sea and who the final buyer is, and then the movement of tankers must be monitored. China, India, Türkiye – yes, but they are reducing their activities, India refuses. Everyone is afraid of secondary sanctions“, points out financial analyst Andrey Shevchishin.

Meanwhile, economist and finance teacher at KMBS Alexey Gerashchenko says: India is taking advantage of this opportunity and is still buying oil from Russia at a lower price. And there are not yet enough tools to force the country to abandon trade with the aggressor.

Expert told Focus About two main aspects of Russian oil exports.

“About 50 percent of the oil was sold to China and 40 percent to India. I think it is problematic to close these two trade directions, because both countries have not imposed sanctions on the Russian Federation. China is actually a partner of China” Russia Federation of India is taking advantage of the opportunity to buy at a lower price. I think sales will continue in both areas, sanctions from developed economies cannot stop them. India’s position is extremely important, but I do not see any trump card to keep India away from such actions; To do this, we must consciously offer India cheaper oil,” Gerashchenko explained.