Sanctions on Russia appear to be working as intended, with oil exports in March the highest since Covid yet revenue down by nearly half from a year earlier, data from the International Energy Agency show.
(Bloomberg) — Sanctions on Russia appear to be working as intended, with oil exports in March the highest since Covid yet revenue down by nearly half from a year earlier, data from the International Energy Agency show.
Daily Russian oil exports averaged 8.1 million barrels a day last month, the highest since April 2020, “as deep price discounts attract traders willing to risk handling the barrels,” the IEA said in its monthly market report on Friday. Export revenue slightly rebounded from February lows, reaching $12.7 billion, but were still 43% down from a year earlier, the agency said.
Things could however become more complicated in the coming months as production cuts by the Organization of Petroleum Exporting Countries and allies including Russia drive oil prices higher. Moscow’s flagship Urals grade in April came within about $5 of the $60-a-barrel cap, while the weighted average export price of all of the country’s crude topped it, the IEA said.
Western countries and their allies have adopted several waves of sanction to reduce Russia’s oil-export proceeds, a key source of revenue for the national budget. The restrictions aim to limit the Kremlin’s ability to finance its war in Ukraine.
The Group of Seven industrialized countries and their European Union allies have imposed ceilings on the price of Russian crude oil and refined products, which are designed to ensure the country’s energy keeps flowing onto world markets while curbing revenue. The price restrictions came on top of EU bans on imports of nearly all seaborne Russian crude and petroleum products, depriving the Kremlin of what has historically been its largest energy market.
The bans forced Russia to find alternative markets in the Middle East, and Latin America and expand supplies in Asia, yet the G-7 price caps have given these new clients the leverage to negotiate discounts. The restrictions stipulate that buyers from third countries can only access western services such as insurance and shipping only if they comply with the caps.
Export Prices Decline
Russian crude oil and petroleum products on average were sold well below the price limits last month, according to the IEA.
The weighted average export price of Russian crude was at $50.67 a barrel, compared with the cap of $60, the IEA calculated, using data from Argus Media Group and Kpler. That’s also nearly $2 a barrel lower than the average price for February, the agency said. The weighted average is considered by western nations in their bi-monthly review of the price cap’s effectiveness.
The IEA estimates are for the so-called free-on-board, or FOB, price, which excludes shipping and insurance costs.
Urals FOB Baltic and Black Sea traded at an average $44.46 and $44 per barrel, respectively, the IEA said. Russia’s premium ESPO blend, designed for exports to Asia Pacific, traded at around $67.50 a barrel, the agency estimated.
However, from April 5, Russia’s weighted average export price exceeded the cap, the IEA said. This was mainly as a result of ESPO rising to around $74 per barrel. “Urals FOB Baltic and Black Sea only just exceeded $55 per barrel, remaining eligible for EU services access,” the agency said.
Russia has welcomed the price rises this month, which Deputy Finance Minister Vladimir Kolychev said may bring additional revenues to the state coffers.
The nation’s petroleum products last month traded below the caps set at $100 a barrel and $45, depending on the type of products, according to the IEA.
Output Drop
In response to the western price restrictions, Russia has pledged to cut its crude production by 500,000 barrels a day from February levels. At the start of this month, the cuts, which started from March, were extended through to the end of the year.
The IEA estimates Russia’s crude production last month was 9.58 million barrels a day, down just 290,000 a day from the February levels. The nation missed the cut target as it “appears to be routing its barrels to new outlets despite EU sanctions,” the agency said.
Russia classified its oil statistics last year due to their “sensitive” nature, making it difficult to assess the implementation of supply cuts beyond the assurances of energy officials. So far, Russian officials have not given any public estimates of crude production in March.
The nation pumped a daily average of 1.285 million tons of crude last month, according to an industry person familiar with the figures published by the Energy Ministry, Bloomberg reported last week. That’s equivalent to just over 9.4 million barrels a day.
(Updates with April price levels from the third and 11th paragraphs.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.