Oil production down

Russia’s oil production fell in April, according to figures from OPEC and the International Energy Agency.

• According to the IEA production in April was down 140,000 barrels a day compared with March, falling to 8.83 million barrels a day. OPEC reported a 107,000-barrel fall to 9.06 million barrels a day. The figures differ slightly, because neither organization currently gets information directly from Russia, relying on secondary data. Moscow classified data on its oil and petroleum production and export after it invaded Ukraine. The discrepancy also arises because OPEC only counts crude oil, while the IEA includes gas condensate.
• The decline in Russian oil output began last year but has accelerated this spring, even as Russia was permitted to pump more under OPEC+ quotas.
• The fall in output is no surprise. Production has been falling for four years running and is currently at its lowest level for 17 years, according to the Economic Development Ministry’s revised macro forecasts.
• The reasons are structural, including taxes that discourage new projects and sanctions that prohibit the purchase of Western equipment. The government’s current military Keynesianism has pushed up the cost of borrowing, while sanctions make it impossible to borrow abroad. Sergei Vakulenko, of the Carnegie Berlin Center anticipates a long-term decline in Russian oil output.
• Despite a spate of Ukrainian attacks on Russia’s ports during the month, Russia’s export numbers were largely unchanged. Oil exports were up 250,000 barrels a day to 4.9 million, petroleum down 300,000 barrels to 2.2 million. Combined exports of oil and petroleum were down 90,000 barrels a day to 7.03 million, according to the IEA.
• The attacks have, however, led to reduced production and exports of petroleum products, which impacts oil company revenues. As we wrote here, the financial load of defending against drones and repairing damaged facilities is falling squarely on the oil companies, reducing funding for any new extraction projects. 

Why the world should care

April’s figures suggest that Russia cannot take full advantage of the surge in global oil prices — not only is it unable to increase production and refining, it has even been pushed into a small decline. Ukrainian drone strikes appear to have no significant effect on the government’s budget but are hitting the finances of oil companies. Coupled with the government’s current tax policies, this will lead to a further decline in oil production and revenues in the future.