Rus­sia's ris­ing oil ex­ports ex­pose holes in out­put deal

The Pak Banker - - 6BUSINESS -

Rus­sia will ex­port more oil to Europe in April than it has in any month since 2013 - de­spite Moscow's plan to sign a global agree­ment on freez­ing pro­duc­tion in a bid to lift the price of crude.

The fact Rus­sian ex­ports are ris­ing il­lus­trates how hard it will be to en­force the deal, due to be fi­nalised on April 17 in Qatar, and shows the po­ten­tial for coun­tries to use loop­holes to keep ex­port­ing crude, blunt­ing the in­tended im­pact on prices.

Rus­sia can raise ex­ports while keep­ing pro­duc­tion flat by re-rout­ing some oil away from re­finer­ies and into ex­ports. Moscow says the freeze cov­ers pro­duc­tion, not sales abroad.

The In­ter­na­tional En­ergy Agency said on Wed­nes­day the deal may be mean­ing­less. Iran and Libya have said they will not par­tic­i­pate, at least for now, and they plan to raise pro­duc­tion.

Nige­ria, the top oil pro­ducer in Africa, has said it ex­pects oil ex­porters to agree a sup­ply freeze in Doha next month but that it plans to boost its own out­put. The in­crease in Rus­sian ex­ports is mainly be­cause of planned main­te­nance at re­finer­ies that re­duced their ca­pac­ity to process crude. It also re­flects Rus­sia's eco­nomic slump, which has re­duced do­mes­tic de­mand for re­fined prod­ucts. But an­other fac­tor, ac­cord­ing to one trader, is a de­sire by Rus­sian pro­duc­ers to pro­tect their share of the crude oil mar­ket in Europe, where Rus­sia's tra­di­tional dom­i­nance is un­der threat from newly ar­riv­ing Saudi sup­plies.

"Of course, no one said those mar­kets be­long to Mother Rus­sia. This is purely com­mer­cial trade," said the trader, who spoke on con­di­tion of anonymity be­cause he is not au­tho­rised to talk to the me­dia. "But a mar­ket­place is a mar­ket­place, no one is go­ing to give it up." Re­ports that mem­bers of the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries as well as non-OPEC pro­duc­ers were dis­cussing an out­put freeze have helped lift world oil prices from glut-in­duced 12-year lows hit in Jan­uary.

Asked what would be cov­ered by the agree­ment, Rus­sian En­ergy Min­is­ter Alexan­der No­vak told re­porters: "The dis­cus­sion is only about freez­ing pro­duc­tion. And not ex­ports."

The high level of Rus­sian oil ex­ports next month was con­firmed to Reuters on Wed­nes­day by ex­port pipeline mo­nop­oly Transneft. Ac­cord­ing to the com­pany, Rus­sia is set to ex­port 7 mil­lion tonnes from Baltic Sea ports in April, the largest vol­ume since Oc­to­ber 2013. That marks a 9 per­cent in­crease on the 6.41 mil­lion tonnes planned for ex­port in March.

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