Russian oil output fell by 70 thousand b/d m/m to 11.23 mb/d in April (+0.26 mb/d y/y), still above the stipulated quota agreed in the December 2018 meeting. Our current forecasts have output rising to 11.3 mb/d by year-end even if OPEC+ agrees on some form of extension in June.
Following the contamination of around 30 mb of Urals (see E-mail alert, 30 April 2019), we expect Russian crude exports to fall in May and June, from 5.24 mb/d in April. Loadings from Primorsk, the only source of clean Urals, should be unaffected, while purchases from Ust-Luga and Novorossiysk are set to be lower in both quantity and quality as Russia prioritises flows on the Druzhba pipeline once the contaminated crude has been cleaned out. The latter terminals will blend contaminated crude with clean Urals until it reaches the 10 ppm organic chloride limit, but buyers have already proven reticent to load cargoes amid fears of damaging refineries or contaminating tankers. Flows on Druzbha line may take months to restore.
Kazakhstan’s March output fell m/m by 80 thousand b/d to 1.82 mb/d and was pegged lower y/y, by 10 thousand b/d. With Kashagan at plateau (0.31 mb/d), growth will be limited for the balance of the year. We expect output to drop sharply April (-0.2 mb/d m/m) and in the fall as maintenance took place at Kashagan (April), and the giant Tengiz field (September/October).
Azerbaijan’s March crude and condensate output was broadly flat y/y at 0.80 mb/d despite a pledge to cut supply by 20 thousand b/d. Condensate output was flat m/m at 84 thousand b/d but higher y/y by 30 thousand b/d, offsetting declining crude output at the ACG complex.
FSU demand rose by 21 thousand b/d y/y to 4.05 mb/d in March, led by gasoil and fuel oil, with growth slowing from a huge 0.22 mb/d y/y in February. Russian diesel demand will continue to grow in 2019, supported by industrial production, which leapt by 4.1% y/y in February but slumped to 1.2% y/y in March as manufacturing growth continued its rollercoaster trajectory.
FSU runs fell m/m by 0.3 mb/d to 6.5 mb/d in March (-0.2 mb/d y/y). Planned offline CDU capacity was lower y/y by 0.14 mb/d, though an increase in unplanned works weighed on runs. Russian runs fell m/m by 0.32 mb/d to 5.50 mb/d (-0.17 mb/d y/y). In Belarus, runs fell y/y by 30 thousand b/d to 0.34 mb/d, while Kazakh runs fell y/y by 50 thousand b/d to 0.32 mb/d.
Russian ULSD production rose by 43 thousand b/d y/y and 70 thousand b/d m/m in March. Output of 10 ppm diesel should fall y/y in Q2 19 amid much heavier diesel hydrotreater works. ULSD loadings from Primorsk in May are slated at 1.00 Mt—down by 14% m/m and 11% y/y.