After a sharp drop in April, Russian oil production rose again by five percent. The newspaper Vedomosti reported on Friday, citing a source in the industry. Demand from Asia is countering losses caused by sanctions.
In May 2022, oil production in Russia was 10.2 million barrels per day, up from 10 million in April. Compared to May 2021, however, production fell by 2.5 percent.
Russia’s Deputy Prime Minister Alexander Novak said in late May that oil production could fall to 480-500 million tons in 2022, down from 524 million tons in 2021. According to the politician, however, the government expects production to recover gradually by about a million barrels per day this month.
The newspaper Vedomosti According to the report, Russian oil producers increased their production from January to May compared to the previous year by around 3.5 percent to 219.9 million tons. This development was led by Surgutneftegaz (+13 percent), Lukoil (+10 percent) and NNK (+9 percent).
According to the statistics, oil exports rose by almost 13 percent to 102.7 million tons. And this despite the fact that some foreign oil traders are reluctant to buy crude oil from Russia due to the risk of secondary sanctions.
The US and UK have already imposed an embargo on Russian oil, while the EU agreed on a partial ban on Thursday. Under the EU’s sixth round of sanctions, imports of oil from Russia by sea to the EU will be banned within six months. However, restrictions on imports via the Druzhba pipeline have been postponed. Hungary, Bulgaria and the Czech Republic have been temporarily exempted from the embargo on Russian oil supplies.
To lure potential buyers, Russia has offered discounts on its oil, which analysts say makes the country’s exports attractive despite the Western embargo. For example, Russia’s oil exports to India increased almost 25-fold in May compared to the same month last year. Exports to China also rose by four percent to 6.55 million tons in April compared to the same month last year. After Saudi Arabia, Russia is the most important source of raw materials for China.
Experts assume that in the coming months Russian producers will continue to direct their export flows towards the Asian markets, which will lead to a further recovery in production. According to forecasts by US analysts Refinitiv, Russian oil exports to India could surge to a record 900,000 barrels per day, while additional supplies to China could reach up to 400,000 barrels per day as demand in the country for starting to recover from the recent COVID-19 lockdowns.
Alfa-Bank senior analyst Nikita Blokhin told ET Vedomosti:
“If European buyers’ refusal to import Ural oil products by sea is gradual, we can expect that the entire declining export volumes will be diverted to Asia within a month and a half to two months.”
He added that further redirecting export flows to Asian markets will help stabilize production at the level of 10.3 million barrels per day.
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