Oil production in Russia will start to grow again in June as the economy stabilizes

However, according to analysts, it is too early to talk about a steady downward trend in exports and oil production.

Oil production in Russia began to recover after falling in the first months of the military operation in Ukraine. Oil production in Russia rose by almost 5% in June, Kommersant reported on June 29.

At the same time, exports of Russian raw materials decreased by 3%, but oil refining is growing due to seasonal demand for fuel within the country and an increase in the supply of petroleum products to Africa. Over the same period, oil supplies to India and China increased significantly.

However, according to analysts, it is too early to talk about a steady downward trend in exports and oil production. At the same time, Russian oil is no longer sold at such a huge discount, as it was in mid-spring, when the Urals blend was sold at a $30 discount to the benchmark Brent.

The good news on oil production comes after Rosstat released a series of upbeat economic data that showed the economy was less hit by the sanctions than economists had feared.

“The latest Russian data for May shows that activity, which fell sharply after the imposition of Western sanctions in March, has begun to stabilize. Some manufacturing industries have benefited from the transition to domestic production. Overall, the fall in Russian GDP this quarter looks set to be around 10% qoq, rather than the 15% qoq we previously expected,” said Liam Peach, emerging markets economist at Capital Economics.

Kommersant reports that oil production for the incomplete first month of summer increased by almost 5%, to 1.46 million tons per day (10.7 million barrels per day). This is less than in January-February (about 11 million barrels per day), but more than in April, when the most significant decline in production was observed (1.37 million tons per day). Production has stabilized at all major Russian companies, while at Rosneft it is growing by 15%, the newspaper notes.

The export of Russian oil in June decreased by 3.3%. A significant part of European exports has been diverted to other markets.

„A holy place is never empty. New traders have appeared – no longer European, but Russian and Asian. Our companies have reorganized, found new forms and ways of working with contractors — through traders or directly,” Deputy Prime Minister Alexander Novak said in mid-June.

Surplus oil produced in June went to refineries, which increased their capacity due to the seasonal increase in demand for fuel. Deliveries for processing increased by 8%, Kommersant’s sources report. Demand for gasoline began to grow, including due to the intensification of domestic tourism.

In addition, exporters began to adapt to the sanctions – the volume of gasoline exports in May and in the first 25 days of June in average daily terms exceeded the levels of the same months last year by 28% and 20%, respectively. According to analysts, purchases of oil products from Russia are growing in African countries. Oil purchases in India have increased more than 50 times since April. Oil imports from Russia to China hit a record high in May. Therefore, it is premature to talk about the formation of a steady downward trend in exports, experts say.

Michael Cooper

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