Putin’s army is consuming gas and Russians are stuck on vacation in their homes – raising the country’s oil production to its highest level in 5 months
Russian oil production is at its highest level since February, as the military consumes gas and people vacation at home, according to data firm Kpler.
The data showed that the surge in domestic demand had led to exports to Asia dropping 40% from their wartime peak.
“The Russians can hardly fly anywhere, so they basically travel across the country,” Kpler analyst Victor Katona told Insider.
The gas-guzzling military and a boom in summer driving are increasing domestic demand for oil in Russia and leading to a sharp decline in exports to Asia, according to energy consultancy Kpler.
Russian oil production was about 10.8 million barrels per day in July, according to data shared with Insider by Kpler — the highest level since Russia’s invasion of Ukraine in late February.
Production initially fell from 11 million barrels per day in February to 10 million in April as the war and resulting sanctions rocked the Russian economy. However, India and China quickly ramped up purchases of the country’s crude, which is traded at a discount in international markets.
Analysts say an imminent European Union ban on Russian oil imports is likely to reduce its production by more than 1 million barrels per day before the end of 2022.
But for now, the recovery in domestic demand has helped boost Russian production for the third month in a row.
Several Russian airlines have been banned from flying over Europe, severely limiting foreign leave for residents of the sanctioned country. This has led to a boom in trips at home, driving up demand for motor vehicle and jet fuel, according to Kpler analyst Victor Katona.
“There is an insanely strong domestic demand,” Katona told Insider. “The 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 the brutal war in Ukraine – is also driving up domestic consumption.
“Every tank, every plane — you name it, all the military hardware is diesel, effectively,” Katona said.
A report released in May by S&P Global Commodities Insights estimated that the invasion would probably consume nearly 6% of the diesel output from Russian refineries.
Kepler said the jump in domestic demand led to a sharp drop in exports, especially to Asia. Katona said government support encourages energy companies to keep their oil in the country.
Russia’s crude oil exports to Asia peaked at 2.2 million barrels per day in April, but fell nearly 36% to about 1.4 million barrels in July, according to Kpler data.
India’s imports of Russian crude peaked at 950,000 bpd in April, but have fallen to around 660,000 bpd this month. China hit 1.2 million barrels per day in May, but has since fallen back to about 740 thousand.
Evidence of a slowing global economy has sent oil prices lower in recent weeks, as traders anticipate lower demand. China’s total crude oil imports have already declined as its economy struggles under a strict non-proliferation policy.
However, Katona said Russia shouldn’t have much trouble increasing exports to Asia again, once the holiday season is over. Russian oil has become cheap – and this makes it attractive to countries that deal with rising prices, such as India.
“It’s a no-brainer,” Katona said. “If you have hyperinflation, the best thing you can do is lower the cost of energy.”
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