Rystad Energy: Russian oil down, but not out

Jan. 18 (UPI) -- Russia seems to be abandoning its crude oil export routes for Europe, focusing more on consumers on its western bank, though Norwegian consultant Rystad Energy finds that deliveries in general are on the rise.

Western economies spent much of last year searching for alternatives to Russian natural resources, which before the outbreak of war in Ukraine accounted for the bulk of supplies in Europe.

Prohibitions on waterborne crude oil and a $60-per-barrel price cap on Russian crude oil have limited the Kremlin's options in the West, though energy-hungry nations such as China and India continue to draw on cheap Russian oil.

Urals, one of the benchmarks for Russian crude oil, is trading in the $40- to $45-per-barrel range, according to Rystad Energy. That compares with $87 per barrel for Brent crude oil, the global benchmark.

Rystad in a report emailed to UPI said its analysts believe Russia is refocusing on the Asian economies, diverting attention away from the loss of barrels moving through the Druzhba oil pipeline to Europe, among the largest in the world, though "it may be too early to draw any definitive conclusion."

In terms of waterborne crude, Rystad said shipments of oil from western Russian ports recently hit a 10-week high at 2.3 million barrels per day. Much of that seems to be making its way to India, where Rystad saw imports increase from 950,000 bpd in November to 1.2 million bpd last month.

Despite Western sanctions, Russia is not as hobbled as many analysts expected last year. Millions of barrels per day were expected to be lost, though it's not been quite that severe.

"The main conclusion that can already be formulated after 1.5 months of the European Union (embargo and G7 price cap on Russian crude is that the effect of sanctions on the volume of Russian crude oil exports has not been as devastating as some industry players predicted," Rystad analysts found.

Economists at the Organization of the Petroleum Exporting Countries said in their monthly market report for January that the Russian economy likely contracted by 5% last year, though a modest level of an increase -- 0.2% -- is expected for 2023 as it adjusts to sanctions.

OPEC hedged its bets, however, by saying that public spending continues to prop up the economy, though the future is uncertain given the mounting sanctions pressures. Next month, the European economy will no longer take in refined petroleum products from Russia, compounding 2022 actions on crude oil.

Assuming geopolitical tensions over the war in Ukraine remain static, OPEC sees a strong domestic market and continued export revenue supporting the Russian economy for 2023.

"However, the contraction that started in second quarter 2022 might carry over to the third quarter at a slower pace, and it could deepen again in the fourth quarter with the implementation of the EU ban on Russian crude seaborne imports," OPEC economists wrote.