Energy Prospectus

One more reason that global demand for oil exceeds supply:

From OilPrice.com
- Boosting the effect of Saudi Arabia’s production cuts, oil production in Canada’s crude heartland Alberta fell to the lowest since June 2016 as producers doubled down on field maintenance.

- According to AER data, Alberta’s oil output dropped 21% year-on-year to 2.71 million b/d as oil sands mines, usually undergoing field maintenance in the summer, posted the highest decrease rates.

- In a surprise move, production figures from Suncor (NYSE:SU) were not included in AER data, with Canadian authorities claiming the oil firm didn’t file its production results, potentially a consequence of a late June cyber hack that debilitated the company’s operations.

- Consequently, Canada’s leading midstream operator Enbridge accepted all crude nominations for its 3 million b/d Mainline pipeline system in August, the second consecutive without apportionment as supply remains low.

Bloomberg: Decline in Russian oil exports is bullish for WTI oil prices.

-- Russia’s seaborne crude flows in the four
weeks to July 30 fell to the lowest since early January, shortly
after a European Union import ban and a wider price cap on the
country’s exports came into effect.
Four-week average shipments dropped to 2.98 million barrels
a day, the smallest since the 28-day period ending Jan. 8 and
down by more than 900,000 barrels a day from the peak seen in
mid-May. More volatile weekly flows rose, with record-equaling
shipments from the Arctic.

As overseas shipments fell, more crude was processed in
Russia’s refineries in July, with several plants completing
major maintenance.

The figures support the notion that Moscow is honoring a
pledge to keep supply off the global market alongside its allies
in the OPEC+ producer coalition. Russia initially said that it
would cut oil production in retaliation for Western sanctions
and price caps on its oil imposed after the invasion of Ukraine,
using February as a baseline. But seaborne flows continued to
rise, only dropping significantly in the last few weeks.

Now, the tighter availability of Russian crude alongside
fewer barrels from the Middle East has narrowed discounts
offered for ESPO crude deliveries to Chinese buyers for
September delivery. More generally, rising prices and a
narrowing discount against international benchmarks is also
making Russia’s crude less attractive to Indian refiners, whose
purchases declined for a second month in July.

Warming temperatures are allowing Russia to use the shorter
route along its northern coast to China. At least four tankers
are hauling crude along the Northern Sea Route from ports in the
Arctic and Baltic. But it remains unlikely that many of the
shadow fleet of aging tankers used to ship Russian crude will be
able to use the route, which still requires ice breaker
assistance at some points.

Weekly data are affected by the scheduling of tankers and
loading delays caused by bad weather. Port and pipeline
maintenance can also disrupt exports for several days at a time.
Four-week average shipments, which smooth out some of the
volatility in the weekly numbers, fell by 154,000 barrels a day.
The very high shipments seen in the seven days to July 2 dropped
out of the calculation, though the effect was partly offset by
a rebound in shipments from Ust-Luga last week.

Overseas shipments of Russian crude from Baltic and Black
Sea ports increased after the output cut was due to come into
effect, peaking in late May. The reduction being seen now comes
after fellow OPEC+ oil producer Saudi Arabia extended its own
unilateral output cut. Russia’s export curtailment was hailed as
meaningful by Saudi Energy Minister Prince Abdulaziz bin Salman,
who had urged Moscow to provide greater transparency on its oil
flows.

Crude Flows by Destination
With few buyers left in Europe, the impact of the lower
flows is being felt in shipments to Asia, which dropped again in
the four weeks to July 30 to their lowest since early January.
On a four-week average basis, overall seaborne exports to
Asian countries, plus the volumes on ships showing no final
destination, have fallen by about 940,000 barrels a day since
their peak in mid-May.

All figures exclude cargoes identified as Kazakhstan’s
KEBCO grade. Those are shipments made by KazTransoil JSC that
transit Russia for export through the Baltic ports of Ust-Luga
and Novorossiysk.

The Kazakh barrels are blended with crude of Russian origin
to create a uniform export grade. Since Russia’s invasion of
Ukraine, Kazakhstan has rebranded its cargoes to distinguish
them from those shipped by Russian companies. Transit crude is
specifically exempted from European Union sanctions.

Asia

Four-week average shipments to Russia’s Asian customers,
plus those on vessels showing no final destination, fell to 2.66
million barrels a day in the period to July 30 from a revised
2.85 million barrels a day in the four weeks to July 23. That
took flows to Asian buyers to their lowest since January on both
a weekly and four-week average basis.

Most of the cargoes on ships without an initial destination
eventually end up in India. Even so, the volumes heading to the
country that has become the biggest buyer of Russia’s seaborne
crude are down from their recent highs. Adding the “Unknown
Asia” and “Other Unknown” volumes to the total for India gives a
figure of 1.66 million barrels a day in the four weeks to July
30. That’s down from a high of 2.2 million barrels a day in the
four weeks to May 21.

The equivalent of 352,000 barrels a day was on vessels
showing destinations as either Port Said or Suez in Egypt, or
which already have been or are expected to be transferred from
one ship to another off the South Korean port of Yeosu. Those
voyages typically end at ports in India or China and show up in
the chart below as “Unknown Asia” until a final destination
becomes apparent.

The “Other Unknown” volumes, running at 243,000 barrels a
day in the four weeks to July 30, are those on tankers showing
no clear destination. Most of those cargoes originate from
Russia’s western ports and go on to transit the Suez Canal, but
some could end up in Turkey, while other cargoes are transferred
from one vessel to another, either in the Mediterranean or, more
recently, in the Atlantic Ocean.

Europe

Russia’s seaborne crude exports to European countries edged
up to 125,000 barrels a day in the 28 days to July 30, with
Bulgaria the sole destination. These figures do not include
shipments to Turkey.

A market that consumed about 1.5 million barrels a day of
short-haul seaborne crude, coming from export terminals in the
Baltic, Black Sea and Arctic has been lost almost completely, to
be replaced by long-haul destinations in Asia that are much more
costly and time-consuming to serve.

No Russian crude was shipped to northern European countries
in the four weeks to July 30.

Exports to Turkey, Russia’s only remaining Mediterranean
customer, edged higher to 167,000 barrels a day in the four
weeks to July 30. Flows to the country had topped 425,000
barrels a day in October.

Flows to Bulgaria, now Russia’s only Black Sea market for
crude, recovered to 125,000 barrels a day, equaling their
highest since January.Flows by Export Location
Aggregate flows of Russian crude rose to 3.28 million
barrels a day in the seven days to July 30, from 2.73 million
barrels a day the previous week. The jump took shipments to
their highest in four weeks. The increases came from western
ports, with higher flows from the Baltic, Black Sea and Arctic
partly offset by a drop in flows from the Pacific.

Figures exclude volumes from Ust-Luga and Novorossiysk
identified as Kazakhstan’s KEBCO grade.

Vessel-tracking data are cross-checked against port agent
reports as well as flows and ship movements reported by other
information providers including Kpler SAS and Vortexa Ltd.

Export Revenue

Inflows to the Kremlin's war chest from its crude-export
duty rose to $49 million in the seven days to July 30, an
increase of $8 million or 20%. Four-week average income fell to
just above $44 million, with the very high value for the week
ending July 2 dropping out of the calculation.

Russia’s government calculates oil taxes, including export
duty, using a discount to Brent, which sets the floor price for
the nation’s crude for budget purposes. If Russian oil trades
above that threshold, the Finance Ministry uses the market price
for tax calculations, as has been the case in recent months. The
discount is set at $25 a barrel for July and August, but
President Vladimir Putin signed amendments to the tax code that
will narrow it to $20 a barrel from September to calculate taxes
including export duty.

The duty rate for July has been set at $2.13 a barrel,
based on an average Urals price of $54.57, which was $20.89 a
barrel below Brent during the period between May 15 and June 14.
The levy will be increased to about $2.31 a barrel for August,
based on an average Urals price of $58.03, which was $18.02 a
barrel below Brent during the period between June 15 and July
14.