Moscow ready to increase oil output but may face exports troubles

Moscow ready to increase oil output but may face exports troubles
Photo: Vodnik

Russian crude producers, which have long complained that Russia was losing market share due to OPEC+ output cuts, may soon start increasing their production levels, as the current agreement expires at the end of March. However, industry sources warn that the country is likely to face insufficient export pipeline capacity.

Russia’s ability to quickly lift oil production is restrained by bottlenecks in exporting capacity, says Reuters citing market sources and own calculations. After OPEC and Russia failed to agree on further joint action to cut production last week, Moscow and Riyadh started preparations for a fight for market share. All production restrictions related to the current deal will be lifted from 1 April, as the agreement expires at the end of March.

Saudi Arabia is planning to raise crude supply to 12,3 million bpd in April. Russia is able to lift oil production by 200,000-300,000 bpd, and potentially by as much as 500,000 bpd, from the current level of around 11,3 million bpd, said Minister of Energy Alexander Novak on Tuesday. However, shipping that oil outside Russia may be complicated. “Spring is the worst time for Russia to increase output. Seasonal maintenance on domestic refineries leads to higher exports anyway, so if we add an output rise here, there is not enough export capacity,” explained an anonymous trading firm source. As Russian refineries hit peak season for maintenance in April and May, more crude will need to be exported instead of being refined domestically. According to preliminary plans, Russian idle primary oil refining capacity is meant to rise to 10,9% and 12,7% of total capacity in April and May respectively.

Russian refineries usually hit peak season for maintenance in April and May. Photo: dynamics.ru

“There is not much space in the pipelines for an output rise due to refinery maintenance and Belarus,” confirmed a source at a major Russian oil company. Russia still has no delivery agreement for this year with Belarus. The latter usually buys 1,5 million tonnes of Russian oil per month. Around a third of that amount will be shipped to Belarus in March, but the rest will need to be redirected elsewhere adding an extra burden to Russia’s export capacities. “Also, increasing output doesn’t make sense given low oil prices, especially for [expensive] offshore projects,” added the source.

In addition, supplies to Europe and China via Druzhba pipeline are scheduled according to term agreements, which are unlikely to be adjusted quickly, Reuters points out.

Russia has not ruled out further joint action with OPEC to stabilise the oil market, said Novak on Tuesday. It will take months for oil prices to recover after they fell to a four-year low due to the collapse of the OPEC+ deal last week, the minister considers.

By Anna Litvina