May 29, 2023 [Bloomberg]- Wherever you look outside of Russia, there is precious little sign of the oil production cut that President Vladimir Putin and other government officials say is underway.
For Russia’s allies in the OPEC+ grouping, who’ve committed to cutting their own output to prop up oil prices, the fact the country isn’t withdrawing supplies from the global market may be a source of frustration.
Shipments of Russian crude beyond the country’s borders are rising, not falling, even as the country is supposedly almost three months into a 500,000 barrel a day output cut, made in retaliation for sanctions and price caps imposed by Group of Seven nations. Yes, external flows of refined products are dropping, but they always fall around now. In fact, they declined by slightly less than they normally do between the first and second quarters.
Crude shipments from Russian ports in the four weeks to May 21 were more than 480,000 barrels a day higher than during the four weeks to Feb. 26, according to vessel tracking data monitored by Bloomberg. February was the baseline month for the Russian production cut.
The same pattern is seen in Russian crude flows by analytics company Kpler. Its data show an increase of about 320,000 barrels a day over the same period. Either way: flows aren’t falling.
Instead, shipments during the most recent period are up by more than 1 million barrels a day from the final four weeks of last year.
That figure’s important, because Russia has claimed that seaborne crude flows have been supported since the output cut by the diversion of barrels previously delivered by pipeline to several European countries.
But the figures show that those pipeline flows slumped well before the supposed output cut came into effect.
Germany stopped importing piped Russian crude this year while the last supplies to Poland were in January. Russia’s piped crude flow to Europe had been redirected before the output cut was even announced, let alone implemented. Piped flows have been stable since February.
So if crude flows aren’t falling, perhaps the output cut is being felt in shipments of refined products?
Here the picture is more complicated, but ultimately there’s scant evidence of a genuine drop.
Using Kpler data to track weekly products shipments from Russian ports, volumes have fallen sharply from a peak of about 3.5 million barrels a day in the week to March 26. By the week ended May 21, they had fallen by 1 million barrels a day.
On the surface, that’s a lot. Even using four-week averages to smooth out some of the extremes, the drop is more than 600,000 barrels a day.
But the path of Russia’s refined products over the first quarter of this year has been anything smooth, with wild swings around the time of an imposition of a European Union ban on seaborne imports that came into effect in early February.
Refined product flows initially tumbled, then sharply rebounded, with a jump in shipments out of the country which peaked in the four weeks to March 26. That surge has exaggerated the subsequent slide in shipments.
With the gyrations in flows seen in the first months of this year, it may make more sense to compare flows on a quarterly average basis. Doing so suggests that there has been no abnormal drop in refined products exports this year.
The fall in average products flows between the first quarter and the first seven weeks of the second quarter has been about 120,000 barrels a day this year.
That compares with an average drop of almost 160,000 barrels a day between the same two periods in the past five years. Including or excluding the Covid year of 2020 makes little difference to the average drop in earlier years.
It may be that the time taken to move crude to refineries, process it and then ship out the resulting products creates a significant delay between an output cut being implemented and it then showing up in lower refined products exports. The country’s oil processing plants have recently cut throughput versus February.
But nearly three months into a pledged 500,000 barrel a day output cut, there is very little sign that its impact is being felt beyond the borders of Russia — assuming production has really been slashed.
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