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OPEC + deal hits West Siberian light oil production in Russia

US, WASHINGTON (NEWS OBSERVATORY) — The record reduction in oil production that Russia took upon itself under the new OPEC + pact could primarily hit the production of light West Siberian raw materials, which has already led to a drop in its supply on the domestic and export markets, sources told Reuters industry.

According to their estimates, the offer of May parties of light raw materials in the Russian market fell by approximately 20%. At the same time, export of Siberian Light from Novorossiysk by Russian companies was not foreseen in May at all, while manufacturers shipped 240,000 tons in April, the position chart showed.

“One gets the impression that the oil industry seriously took up the decline in production. We were cut back (volume) by about 19% (for delivery in May), ”said one of the Russian traders who supply raw materials to independent oil refineries in the Russian Federation.

Russian oil companies received an order from the Ministry of Energy to reduce production in May-June by about 20% compared to February 2020 as part of the global OPEC + deal – by 2.5 million barrels per day.

About 5.5 million tons of oil are sold monthly on the free market of the Russian Federation, a significant part of which is light West Siberian.

A source at a large oil company estimated a decline in sales of raw materials to Russian refiners with a May delivery of about 20-22%.

“It is mostly light oil,” he said.

Sources say that the company did not receive the installation for the reduction of light oil, however, the wells producing the grade are easier to preserve.

“It is easy to shut off a well at the fountain, but is it easier to return it to work – not a fact, it all depends on the field,” one of them said.

Other market participants recalled that in a previous decline in production, in 2016, oil companies also first brought down the production of light oil.

“Light oil always comes down. Even with the last decline in production, there was a shortage of production, ”one of the Reuters interlocutors said.

In addition, another argument in favor of reducing light oil was the fall in demand and prices in export markets.

According to Reuters, the main Russian Urals oil was trading in the south on April 28 with a premium to the benchmark of $ 0.50 per barrel, while Siberian Light – at a discount level of about $ 6.0 per barrel.

Meanwhile, sources say, each producer chooses which wells to shut down, and these are, as a rule, unprofitable, the production of which requires significant investments.

The reduction in the supply of May consignments of raw materials on the Russian market was noticed not only by consumers of light oil, but also by heavier ones from the Volga region, in particular from Tatneft.

Due to falling demand and the lack of oil storage facilities, Tatneft began to sharply reduce oil production in April – by about 17% compared to the level of the first quarter of 2020.

According to Reuters, May shipments of light West Siberian oil were traded on the domestic market of the Russian Federation with a record premium to export parity – about 4.000 per ton or higher against the backdrop of excessive demand from Russian refiners.

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Article is written and prepared by our foreign editors from different countries around the world – material edited and published by News Observatory staff in our US newsroom.

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