Oil Macro

Russia Production Cuts, IEA Contradictions and DUCS

This was not a planned piece of content however, I enjoy sharing my streams of consciousness with you all and typically will try to post notes like this when what I am thinking about is too long to be an X post and too short to justify a full dedicated piece of content.

With that said, lets dive in.

Russia

As we wrote in a previous post this month, supply growth in Russia seems a long shot to us. Partly due to that need for more oil to be brought to market to fund the war effort and that, if Russia could produce more and earn more funds to complete their campaign in Ukraine, one would assume that would be done by now.

From a fundamental point of view geology is working against the Russians. Many of their largest fields in Western Siberia have been producing for a very long time and were ran extremely hard in the days of the Soviet Union to fund conflicts around the world.

Recently, due to the Ukranian offensive against Russia, ports such as Primorsk and refineries like Kirishi are being damaged as a result of the war. Transeft, Russia’s oil monopoly has warned that if attacks continue at the same scale and pace, producers would have to curb flows as storage and intake capacity is limited.

Goldman Sachs has made the claim that 300K p/d of refining capacity has been taken out of the market in Russia. Kirishi alone accounts for 355K of refining capacity prior to the most recent attacks and obviously if your downstream industry is significantly hindered and you can’t store the incremental product, only a slowdown in overall production would remedy that issue.

“The overnight strike on the Kirishi refinery, in Russia’s northwestern Leningrad region, follows weeks of Ukrainian attacks on Russian oil infrastructure that Kyiv says fuels Moscow’s war effort. The facility, operated by Russian company Surgutneftegas, produces close to 17.7 million metric tons per year (355,000 barrels per day) of crude, and is one of Russia’s top three by output.” - The Associated Press

International Energy Agency (IEA) Contradictions

“If governments are serious about the climate crisis, there can be no new investments in oil, gas and coal, from now – from this year.” - Faith Birol, Executive Director of the IEA

In stark contrast to the note above the IEA is now sounding the alarm that more oil and gas investment is needed and fast. This reversal of opinion reminds us of many of the same estimates that 2019 saw the peak for world oil demand and by 2021 we had already hit new all-time highs.