Vladimir Putin’s Russia is still pumping out copious amounts of oil despite Western sanctions.OZAN KOSE/Getty Images
According to data company Kpler, Russian oil production has hit its highest level since February as the army gorges on gas and people vacation at home.
Booming domestic demand has caused exports to Asia to fall 40% from their wartime peak, data show.
“Russians can hardly fly anywhere, so they basically travel all over the country,” Kpler analyst Viktor Katona told Insider.
According to energy consultancy Kpler, a gas-guzzling army and a boom in summer traffic are fueling domestic demand for oil in Russia and causing exports to Asia to fall sharply.
Russian oil production was around 10.8 million barrels a day in July, data shared with Insider by Kpler showed – the highest level since Russia invaded Ukraine in late February.
Production initially fell to 10 million in April from 11 million barrels a day in February as the war and resulting sanctions rattled the Russian economy. However, India and China quickly ramped up their purchases of the country’s crude oil, which was trading at a discount in international markets.
A forthcoming European Union ban on Russian oil imports will likely cause production to fall by more than 1 million barrels a day by the end of 2022, analysts say.
For now, however, a rebound in domestic demand has helped Russian production rise for the third straight month.
Many Russian airlines have been banned from overflying Europe, severely curtailing overseas vacations for residents of the sanctioned country. This has led to a boom in home travel, according to Kpler analyst Viktor Katona, which has spurred demand for motor and jet fuel.
“There’s just insanely strong domestic demand,” Katona told Insider. “Russians can hardly fly anywhere, so they basically travel all over the country.”
Katona said Russia’s war machine – now in its fifth month of a brutal war in Ukraine – is also boosting domestic consumption.
“Every single tank, every single plane – you name it, all military equipment is effectively diesel fueled,” Katona said.
The story goes on
A May report by S&P Global Commodities Insights estimated that the invasion could consume nearly 6% of the diesel coming out of Russian refineries.
Kpler said the increase in local demand has led to a sharp drop in exports, particularly to Asia. Government subsidies are also encouraging energy companies to keep their oil in the country, Katona said.
Russia’s crude oil exports to Asia peaked at 2.2 million barrels a day in April, but fell about 36% to around 1.4 million barrels in July, according to Kpler data.
India’s imports of Russian crude peaked at 950,000 barrels a day in April but have fallen to about 660,000 this month. China hit 1.2 million barrels a day in May but has since fallen to around 740,000.
Signs that the global economy is slowing have pushed oil prices lower in recent weeks as traders anticipate a fall in demand. China’s overall crude oil imports have already fallen as its economy struggles under a strict zero-COVID policy.
However, Katona said Russia should have little trouble restarting exports to Asia once the holiday season ends. Russia’s oil is getting cheap – making it attractive to countries like India struggling with rising prices.
“It’s a no-brainer,” Katona said. “When you have massive inflation, the best thing you can do is cut your energy bills.”
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