Russia’s oil revenue drops sharply as price caps work
Russia’s oil-export revenue fell to lowest in more than a year in February as buyers of the nation’s barrels largely complied with price caps and sanctions, according to the International Energy Agency.
The flow of money into the country from international oil sales fell to $11.6 billion last month, down more than 40% from a year earlier, according to the IEA. February crude oil and product exports averaged 7.5 million barrels a day, the lowest since September, the agency estimated.
“Although it has been relatively successful in sustaining volumes, Russia’s oil revenue has taken a hit,” the IEA said on Wednesday in its monthly report.
Western countries and their allies have taken a number of steps to reduce Russia’s oil proceeds, a key source of revenue for the national budget, in order to limit the Kremlin’s ability to finance its war in Ukraine.
The coalition of nations have imposed ceilings on the price of Russian crude oil and refined products, which are designed to ensure the keep country’s energy flowing onto world markets while curbing revenue. The price restrictions came on top of European Union 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 western caps gave the new clients the leverage to negotiate lower supply prices. The restrictions stipulate that buyers from third countries can access such western services as insurance and shipping only if they comply with the caps.
Initial market signals indicate that Russian crude oil and petroleum products on average were sold well below the price caps last month, according to the IEA. The agency’s calculations may be a factor in discussions between European nations on Wednesday, with Estonia, Lithuania and Poland arguing that the ceiling can be set much lower.
The weighted average export price of Russian crude was at $52.48 a barrel, compared with a cap of $60, the IEA calculated using data from Argus Media Group and Kpler. The estimates are for the so-called free-on-board, or FOB, price, which excludes shipping and insurance costs.
Urals crude, Russia’s key export blend, sold for $45.27 in the Black Sea market, while such blends as ESPO, Sakhalin and Sokol, designed to be sent to Asia, traded well above the cap, according to the IEA.
Russian diesel and gasoline, and lower-value products including naphtha and fuel oil, also traded on average below their caps of $100 and $45 a barrel, respectively, the data show.
The IEA drew a different conclusion to the US Treasury, which estimated that only 25% of Russian oil sales occur below the cap. Still, both parties say the restrictions are doing their job by curbing Russia’s budget revenue while keeping export flows robust.
The IEA revised up its outlook for Russia’s average 2023 oil output to 10.4 million barrels a day, which is still down 740,000 barrels a day from the prior year.
The country’s production “has held up surprisingly well following its invasion of Ukraine as measures have been put in place to facilitate the re-routing of crude oil exports to new markets,” according to the IEA.
In retaliation for western sanctions, Russia pledged to cut its oil production by 500,000 barrels a day in March. So far, according to Bloomberg ship-tracking data, there’s no sign of export flows being affected. Russia’s refinery throughput in the first days of March dropped 2% on February levels, but the cuts may be partly an effect of seasonal maintenance.
©2023 Bloomberg L.P.
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