An embargo will hurt the Russian oil industry

The European Union’s embargo on Russian oil will affect the country’s crude exports – a cornerstone of the national economy – but it may not do much damage until the restrictions take effect .

For now, analysts say, Russian oil production is proving resilient as European and other buyers seize the opportunity to buy crude at a price of around $30 a barrel against Brent crude, the international standard.

Kpler, a company that tracks oil transportation, estimates that Russian oil production actually increased by around 200,000 barrels per day in May, to 10.2 million barrels per day, from April. Still, that was about 800,000 barrels per day below February levels.

The price of the main U.S. oil price benchmark, West Texas Intermediate, rose about 3% on Tuesday, while the closely watched price in Europe, known as Brent, rose just over 1%.

Kpler predicts that the European Union embargo could lead to a further drop in Russian production of one million barrels per day, or around 10%, once the restrictions come into force by the end of the month. year. The slowdown would contribute to what many analysts expect will be a broad erosion of Russia’s energy industry in the coming years as major oil companies leave the country and sanctions curb imports of Western technology.

The recent production surge came as Russian refineries ramped up output after regular maintenance and buyers lost some of their wariness of handling Russian oil.

“Buyers have become accustomed to dealing with Russian shipments,” said Kpler analyst Viktor Katona.

Russian exports to the European Union by sea, for example, fell by around 440,000 barrels per day from February to March, but have since remained relatively stable at around 1.2 million barrels per day. Italy has been a big buyer, taking around 400,000 barrels a day, although around a quarter of that oil is shipped to central Europe via Trieste.

Kpler estimates that an average of about 600,000 barrels of oil per day were piped from Russia in May to countries including Hungary, Slovakia, Poland and Germany.

Hungarian oil company, MOL, said earlier this month that its refining profits were skyrocketing due to the discount on Russian Urals crude. The Hungarian government has lobbied against sanctions on Russian oil, arguing that as a landlocked country it has no choice but to rely on pipeline shipments from Russia.

In the meantime, buyers are likely to stock up on cheap oil. India came to Russia’s rescue, buying more than 700,000 barrels a day in May.