A European Union embargo on Russian oil would affect the country’s crude oil exports — a cornerstone of the country’s economy — but it couldn’t do much damage until the restrictions actually take effect.
For now, analysts say, Russian oil production is proving resilient as European buyers and others seize the opportunity to buy crude at a discount of about $30 a barrel against Brent oil, the international standard.
Kpler, a shipping tracking company, estimates that Russian oil production increased by about 200,000 barrels per day in May to 10.2 million barrels per day, compared to April. Still, that was about 800,000 barrels per day below the February level.
Kpler expects that if the European Union agrees on the embargo, Russian production would fall by an additional one million barrels per day, or about 10 percent, once the restrictions come into effect. The downturn would contribute to what many analysts believe will be a broad erosion in Russia’s energy industry in the coming years as major oil companies leave the country and sanctions curb imports of Western technology.
The recent surge in production came as Russian refineries increased production after regular maintenance, and as buyers lost some of their reluctance to handle Russian oil.
“Buyers have become accustomed to handling Russian cargo,” said Viktor Katona, an analyst at Kpler.
Russian exports to the European Union by sea, for example, declined by about 440,000 barrels per day from February to March, but have since remained relatively stable at around 1.2 million barrels per day. Italy was a major buyer, taking in about 400,000 barrels per day, although about a quarter of that oil is shipped to Central Europe via Trieste.
Kpler estimates that in May, an average of 600,000 barrels of oil flowed per pipeline from Russia to countries such as Hungary, Slovakia, Poland and Germany.
Hungarian oil company MOL said earlier this month that its refining profits had “continued to rise” because of the discount on Russia’s Ural oil. The Hungarian government has lobbied against sanctions on Russian oil, arguing that as a landlocked country, it has little choice but to rely on pipelines from Russia.
In the meantime, buyers are likely to stock up on cheap oil. India has come to the rescue of Russia, buying more than 700,000 barrels a day in May.
