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Oil gets stuck in the pipes

21 December 2022

Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department

Sergey Kondratiev, Deputy Head of the Economic Department of the Institute for Energy and Finance, commented to the Kommersant newspaper on the dynamics of oil production in Russia at the beginning of 2023.

According to Kommersant, against the background of the EU embargo and the ceiling on oil prices, oil exports from Russia decreased by more than 10% in the first two decades of December. Oil companies were preparing for the embargo in advance and reoriented the EU supplies to Asian markets, and the effect of the ceiling is not so noticeable yet due to the transition period provided for by sanctions. Oil production in Russia has not yet suffered amid the growth of refining. The Russian authorities plan to introduce retaliatory measures to the price ceiling, but their content and effectiveness are still unclear.

Now the situation that we already observed in March 2022, when exports declined with stagnant production, may repeat, Sergey Kondratiev believes.

According to the expert, this is due to the fact that reducing production takes time — companies must decide on a strategy and carry out the necessary technical measures.

Russia does not have large oil storage facilities that would allow it to regulate supplies without reducing production, Kondratiev emphasizes. In his opinion, it is highly likely that the Russian Federation will reduce production already in January 2023 and it will remain at low levels until spring — due to relatively weak demand on the world market and the ban on the import of Russian petroleum products imposed by the EU countries from February 5, 2023.

In April—May 2022, Rosneft, which suffered from EU sanctions and "self-restrictions" of Western traders, reduced production and exports the most, Kondratiev adds . Now the positions of Rosneft, which has reoriented supplies to Asia, look quite stable, but LUKOIL may find itself in a difficult situation due to the stoppage of supplies to its own refineries in Italy and Romania.

Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department
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