A Russian-specific oil production cut is inevitable as drone strikes reduce exports, sources say

April 2 (Reuters) – A cut in Russian oil production is imminent as Ukraine’s strike on port infrastructure, pipelines and refineries has reduced export capacity by 1 million barrels per day, or a fifth of total capacity, three industry sources said on Thursday.

Production cuts in Russia, the world’s second-biggest exporter, will add stress to global supplies at a time when oil markets are reeling from unprecedented supply disruptions due to conflict in the Middle East.

Ukraine has stepped up attacks on Russia’s oil export infrastructure since last month. Ukraine has targeted the Baltic ports of Ust-Luga and Primorsk in the biggest drone strike of the more than four-year war, which it says is aimed at undermining Russia’s economy.

At least 20% of Russia’s total export capacity is out of order, down from a peak of 40% in March, but still enough, according to three industry sources, to have an impact on Russian oil production, the world’s third largest behind the United States and Saudi Arabia. The sources spoke to Reuters on condition of anonymity because of the sensitivity of the situation.

The oil pipeline system is choked with oil

Russia’s main Baltic port of Ust-Luga suspended oil exports a week ago after heavy drone strikes and fires. As Ukrainian drones target both export infrastructure and domestic refineries, Russian oil pipeline systems are choked with oil and storage is overflowing, the sources said.

That means some oil fields will have to cut production to avoid further flooding the system, they said.

Russia has benefited from a rise in oil prices since the start of the US-Israeli offensive on Iran in late February, but cuts in its energy output will still hurt as oil and natural gas account for a quarter of the state budget.

Limited pipeline capacity

Russia’s export capacity was squeezed even before the attack on the Baltic port because the Druzhba pipeline, which supplies oil to Hungary and Slovakia, had been suspended since January.

More than 80% of Russia’s oil is pumped by the state-controlled pipeline monopoly Transneft.

Transneft and Russia’s Energy Ministry did not respond to requests for comment.

According to sources, Transneft has informed exporters that Ust-Luga has been unable to load oil according to the initial export schedule due to the recent damage.

One of the sources also said that Transneft is unable to get the full amount of oil into its system from producers scheduled for export via Ust-Luga.

The Organization of the Petroleum Exporting Countries said Russian oil production stood at 9.184 million barrels per day in February. The source did not say how much production could be cut.