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Russia’s oil revenues continue to fall as exports see further slump, IEA says

The global oil market is caught in the cross-currents of supply outstripping still-lacklustre demand – with stocks building to levels not seen in 18 months, according to a recently published monthly Oil Market Report by the International Energy Agency (IEA).

Much of the supply overhang reflects ample Russian barrels racing to re-route to new destinations under the full force of EU embargoes, the report said. Despite the increasing dislocation in global trade, the rising stock cover has held the Brent crude oil futures in a relatively narrow 80-85 US dollars (75.8-80.6 euros) a barrel (bbl) range since the start of the year.

A 52.9 million-barrel (mb) January surge in global inventories lifted known stocks to nearly 7.8 billion barrels, their highest level since September 2021 and preliminary indicators for February suggest further builds, according to the IEA. Despite solid Asian demand growth, the market has been in surplus for three straight quarters, the report said.

“While Russian oil production remained near pre-war levels in February, Russia’s exports to world markets fell by more than 500 kb/d [thousand barrels per day] to 7.5 mb/d [million barrels per day]. Shipments to the EU plunged by 760 kb/d to just 580 kb/d. Over the past year, 4.5 mb/d of Russian oil previously going to the EU, North America and OECD Asia Oceania has had to find alternative outlets. Willing buyers in Asia, namely India and, to a lesser extent, China, have snapped up discounted crude oil cargoes, but increasing volumes on the water suggest the share of Russian oil in their import mix may be getting too big for comfort,” the report read.

According to the report, Russia accounted for around 40 per cent and 20 per cent of Indian and Chinese crude imports, respectively, in February. The two countries took in more than 70 per cent of Russia’s crude exports last month.

In February, Russian product exports to the EU and its G7 allies slumped by nearly 2 mb/d versus pre-war levels. At the same time, exports to Asia grew by less than 300 kb/d. Shipments to Africa, Türkiye and the Middle East rose by 300 kb/d, 240 kb/d and 175 kb/d, respectively, while Latin America received roughly the same as before the war. The lack of buyers saw oil pile up on the water and product exports drop by 650 kb/d y-o-y.

“It remains to be seen if there will be a sufficient appetite for Russian oil products now that the price cap is in place or if its production will start to fall under the weight of sanctions,” the report highlighted. In February, Russia’s estimated oil export revenues fell to 11.6 billion US dollars (11 billion euros) – a 2.7 billion-dollar decline from January when volumes were significantly higher, and nearly half pre-war levels. Russian fiscal receipts from oil sales were up 22 per cent from January after export taxation rules were adjusted, but at 6.9 billion US dollars (6.5 billion euros), just 45 per cent of the level from a year earlier, according to the Russian finance ministry.

In terms of crude oil futures, the IEA said that the fall to around one US dollar (0.95 euros)/bbl m-o-m in February was due to faded optimism surrounding China’s reopening faded in the face of the hawkish drift in central bank policy. West Texas Intermediate (WTI) continued to slump in physical differentials amid ongoing US crude stock builds. Prices fell a further three US dollars (2.85 euros)/bbl in March as macroeconomic worries escalated following the collapse of Silicon Valley Bank.

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