Russian Oil Isn't Dead Yet

Russian Oil Isn't Dead Yet
Russian oil isn't dead yet, according to Rystad Energy Analyst Louise Dickson.

Russian oil isn’t dead. At least not yet.

That’s according to Rystad Energy Analyst Louise Dickson, who made the statement in a market note sent to Rigzone on Thursday.

“Russian exports remain surprisingly resilient in the face of Western sanctions as Russian oil expands its market share in key growth markets such as Asia and India,” Dickson said in the market note.

“Recently we have seen evidence that much of the ‘lost’ Russian exports to the EU can be absorbed by Asia, helping to balance global markets … Heavily discounted Urals will continue to find a home, especially at Asian refineries,” Dickson added.

In the note, Dickson stated that, on paper, Russia has about 800,000 barrels per day of spare capacity that could be brought back online in the coming months.

“Russian Deputy Prime Minister Alexander Novak said on June 16 that oil production in June had already increased 600,000 barrels per day, which by any measure is a rapid turnaround for bringing back online shut-in capacity,” Dickson said.

The Rystad analyst highlighted in the note that, in 2014, after the annexation of Crimea, the U.S. responded with sanctions that banned technology and equipment on shale, arctic, and deep-sea drilling, but Russia did not experience any material losses in oil and gas production.

This time around, however, Dickson warned that, with service companies exiting the country and amid the greater backdrop of supply chain bottlenecks, Russian production could see prolonged weakness if wells are not properly serviced, pipeline infrastructure deteriorates, or refinery operations are curtailed.

“The oil market is continuing to digest how to price in the significant reshuffle of Russian barrels on the market, and so far, Moscow has been successful in pricing out its OPEC+ competitors in the premium Asian market while exacerbating an already existing short-supplied market in Europe,” Dickson said.

“Despite the looming twin threat of inflation and recession, the impact on oil demand is not yet visible in the market,” Dickson added.

“Until we see material signals of demand weakness, the actual downward price risk to the market in the near term is any surprise supply comebacks, whether from Russia or from OPEC+ in reaction to Russia’s market expansion through heavily discounted oil or, in other words, a price war,” Dickson continued.

Curbed Russia Gas Supplies

In a separate market note sent to Rigzone earlier this week, Rystad analyst Zongqiang Luo outlined that Europe was looking to coal as Russia curbed gas supplies.

“With further concerns over reduced Russian gas supplies, the Dutch TTF gas future gained again settling at $38.96 per MMBtu for July contracts primarily due to less supplies from both Russia and Norway,” Luo said in the note, which was sent to Rigzone on June 22.

“The gas supplies from Nord Stream have maintained stable with the level of 63 million cubic meters per day (mcm/d) on 21 June but still lower than the normal level of about 150 mcm/d since Gazprom announced that they have not received the turbine that was sent to Canada for maintenance within due time,” Luo added in the note.

“There is still an uncertainty over how long Nord Stream 1 supplies will be capped, but the scheduled 10-day maintenance work for Nord Stream 1 from 11 July, which will account for a supply loss of approximately 600 million cubic meters, will further tighten the European gas market during the summer,” Luo continued.

In the note, Luo stated that, after the announcement of reversing policies to burn less coal in the German, Austrian and Netherland power sectors due to lower Russian gas supplies, more discussions, and decisions on measures to address the European energy crisis are expected.

“The European Commission stated that Europe shall stay focused on massive investment in renewables and long-term drive to cut fossil fuel use while the IEA warns the possibility of the full-stop of Russian gas supplies this winter, greatly risking gas storage targets this year, never mind the pain that will come this winter should this happen,” Luo said in the market note.

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