The Kremlin may be forced to reduce its oil output in the future months as U.S. sanctions deter its ability to ship oil to Asia and Ukrainian drone incursions limp its refineries.
Washington imposed sanctions that affected 180 Russian tankers. At the same time, Ukraine has intensified drone attacks to enhance its bargaining standing amid anticipations that U.S. President Donald Trump will push Russian leader Vladimir Putin to mediate a settlement to the fighting in Ukraine. Trump has stated preventing the conflict is a focus and that he could inflict new sanctions on Moscow if his plans are not achieved.
As reported by Reuters, oil executives have expressed that there is a rising glut of crude in Moscow due to declining exports and decreased refining production, which can only be handled by reducing output. Russia has a small storage capacity, and Kyiv has struck some of these installations with drones in recent weeks.
Crude exports are already showing signs of weakness in trading data. Shipments from Russia’s western ports of Primorsk, Ust-Luga, and Novorossiisk in January were reduced by 17% from a year before.
Moscow no longer publishes its export data. Over the past three years, Russia has withstood waves of sanctions, including the G7 setting a $60 per barrel price cap on its oil sales. U.S. sanctions have not sought to prevent Russian exports but to cap the cost at which Russia can trade and to ensure it yields with the regulations. Russia’s daily output of about 9 million barrels, already well down from a record 11.25 million acquired in 2019, includes about 5 million bpd earmarked for its refineries.
However, there has been a peak in the number of Ukrainian drone raids since January, which have shot eight Russian refineries as well as oil stations and industrial areas. The episodes have crippled about 10% of Russian refining capability.
Major sites, including the Volgograd, Ryazan and Astrakhan refineries, have stopped producing fuel products, and there will be a delay in restoring them, expressed industry sources familiar with the plant’s functions.
Kyiv also struck Russia’s limited oil hold as well as channels and pumping stations, halting flows to export docks and refineries in January, traders stated. One of Russia’s biggest ports, Ust-Luga on the Baltic Sea, inscribed loadings to a four-year low in January, operating only half its capability, traders stated, citing issues with pipelines.
