Russia will export more crude beginning in September, with most incremental exports targeting Europe, according to ESAI Energy's CIS Watch Crude Outlook. Russia's higher exports will come just as European refiners cut imports of Iranian crude, turning Iran's loss into Russia's gain.
According to the report, which highlights near-term developments in Russian crude fundamentals and their market impact, higher crude production in July and August caused average crude exports to rise to 5.1 million b/d, 100,000 b/d higher than in the first half of the year. Major producers like Rosneft continued to ramp up production in August, offsetting lower production at Sakhalin projects due to maintenance. Following maintenance at those fields, Russian production will climb even higher from September. Meanwhile, the refinery turnaround season will undermine crude demand, causing Russia's exports to climb to 5.5 million b/d. Production growth will also sustain higher exports after the refinery maintenance season.
“The increase in Russian exports comes just as Europe cuts imports of Iranian crude, creating an opening for Russia to place more crude in that market,” explains ESAI Energy Principal Andrew Reed. “Since Russia cannot increase its eastbound exports much in the near term, another 300,000 b/d of crude will flow toward Europe. An increase in outflows to Europe is contrary to Russia's longer-term pivot to Asia, but Iran's loss of market share in Europe presents an immediate opportunity for Russian exporters in that market.”