News 1: European Commission President von delaine said that the EU proposed to ban the import of Russian crude oil in the next six months and the import of Russian refined oil before the end of the year. “This will be a comprehensive import ban on all Russian oil, including sea and pipeline transportation of oil, crude oil and refined oil. We will ensure that Russian oil is phased out in an orderly manner, so that we and our partners can ensure alternative supply routes and minimize the impact on the global market,” she said Hungary and Slovakia, which had previously opposed the rapid cut-off of Russian oil supplies, will be allowed a longer time (until the end of 2023) to prepare. Von delaine said that the EU also proposed to cut off the connection between the Russian Federal Savings Bank (Sberbank) and other Russian lending institutions and the swift system.
News 2: cdu-tek: Russia’s oil output fell 8.75% in April, from 11.1 million barrels per day to 10.05 million barrels per day, down about 1 million barrels per day.
According to our industry special report “the impact of the Russian Ukrainian conflict on the crude oil market may be reflected in May” issued on April 29, 2022, we believe that:
1. Before the Russian Ukrainian war, Russia’s crude oil production reached the capacity bottleneck: according to the iea4 monthly report, Russia’s output in March was 10 million barrels / day. After three consecutive months of no production increase from December 2021 to February 2022, there was a month on month decrease of 50000 barrels / day. The impact of the war on crude oil production in March has not been reflected. However, according to the production increase rules of OPEC + alliance in 2022, Russia has a production increase quota of 100000 barrels per day per month. In March 2022, Russia’s target output should be 10.33 million barrels per day. Russia’s actual output is 330000 barrels per day lower than the target output. Russia’s crude oil production capacity has been in trouble before the war. Therefore, for Russia, insufficient capital expenditure has led to the decline of old wells for many years from 2014 to now, and insufficient capital expenditure has led to the continued decline of production capacity in 2020. Russia is now unable to return to the normal production level of 10.46 million barrels / day before the epidemic.
2. In 2021, Russia’s crude oil export volume will reach about 5 million barrels per day. From the perspective of export destinations, about half of Russia’s crude oil will be exported to the European OECD, especially the Netherlands (14%), Germany (10%) and Poland (6%). In 2021, Russia’s refined oil export will be about 3 million barrels per day, including the European Union (43%). In 2020, Europe imported about 2.8 million barrels of crude oil from Russia, accounting for 30% of Europe’s total imports. At present, although the EU has not reached an agreement on banning Russian oil, we believe that there is an energy trust problem in Europe. Many European countries have put forward plans to gradually reduce their dependence on Russian oil and promote the diversification of oil import sources of European countries. Although in terms of quantity, China and India’s crude oil imports far exceed Russia’s crude oil exports, we believe that based on the long-term decentralized crude oil import structure of China and India, the construction of pipelines, ports, wharfs, ships and other infrastructure, as well as the means of financing payment, high transportation costs and reputation risks, it is difficult for Asia to undertake all the crude oil transferred from Europe, However, the flow of Global trade will be completely changed, and the conflict between Russia and Ukraine will have a sustained and far-reaching impact on the crude oil market.
Russia’s crude oil exports began to decline in March or may. We believe that, on the one hand, the United States, Britain and other countries set the export ban exemption period for April 20 to increase imports before the end of the exemption period. On the other hand, traders said they were implementing the trade agreement reached before the Russian Ukrainian war, but Trafigura, Russia’s main oil buyer, said: “the company will fully abide by all applicable sanctions, and it is expected that the oil trade volume with Russia will be further reduced from May 15”. In addition, shell said on April 7, 2022 that it would stop buying Russian oil on the spot market. However, for the contracts signed before the Russian Ukrainian war, the company is legally obliged to accept the delivery of Russian oil, and shell defines the refined oil mixed with 50% or more of Russian oil as the oil produced in Russia. If the proportion of diesel and other oil products containing Russian oil is 49.9% or less, such transactions are not restricted, but on April 27, Shell said it would no longer accept restrictions on the export of oil products of Russian origin. The EU plans to implement the sixth round of economic sanctions against Russia, including a phased ban on oil imports. If this round of sanctions is reached, it will further restrict Russian oil exports.
4. According to the April report of IEA 2022, IEA predicts that Russia’s crude oil production will decline by 3 million barrels per day from May, including a direct decline of 1.5 million barrels per day in crude oil exports, a decline of 1 million barrels per day in refined oil exports, and a decline of 500000 barrels per day in demand caused by Russia’s economic contraction in China. The three factors together will force Russia’s crude oil production to decline by 3 million barrels per day. Specifically, IEA’s assumption of Russian crude oil supply is based on the limited export of crude oil and petroleum products and the decline in the demand for Petrochina Company Limited(601857) products. Before the Russia Ukraine war, Russia exported about 5 million barrels of crude oil and 3 million barrels of petroleum products every day. IEA believes that Russia’s transportation to EU countries, China and Belarus through pipelines will continue, with a total of about 1.9 million barrels / day. Rosneft and Lukoil have refining assets in Europe, which will continue to receive another 500000 barrels / day of Russian offshore crude oil. In addition, 800000 barrels / day of offshore crude oil exports to China will be maintained or increased. Therefore, IEA predicts that crude oil export may be interrupted by about 1.5 million barrels / day, and Russia’s refined oil export will be reduced by 33%, equivalent to 1 million barrels / day. Coupled with the decline of 500000 barrels / day in Russia and China’s demand, the processing capacity of Chinese refineries will be reduced by 1.5 million barrels / day. Therefore, the total impact of the Russian Ukrainian war on Russian crude oil production is 3 million barrels / day.
5. We believe that the impact of the war on the production and export of Russian crude oil will gradually appear from May 2022, and the supply may drop by 3 million barrels / day. The flow of oil and gas trade in Russia, China, Europe and the United States will also change, and the conflict between Russia and Ukraine will have a sustained and far-reaching impact on the crude oil market.
The production capacity cycle has triggered great energy inflation, and we continue to be optimistic about the historic allocation opportunities of energy resources such as crude oil. We believe that whether it is traditional oil and gas resources or American shale oil, capital expenditure is the main reason for limiting crude oil production. Considering that the global capital expenditure on crude oil is insufficient for a long time, the elasticity of global crude oil supply will decline. In the transformation of old and new energy sources, the demand for crude oil is still growing, and the world will face the problem of crude oil shortage for many years. The international oil price will usher in an upward turning point in 2022. In the medium and long term, the oil price will remain high for a long time, and the energy resources are expected to be in an upward cycle in the next 3-5 years. We will continue to be firmly optimistic about this round of energy inflation, Continue to be firmly optimistic about the historic allocation opportunities of energy resources such as crude oil under the capacity cycle.
Risk factors: the risk of re spread of covid-19 epidemic in the world; New energy sources increase the risk of replacing traditional oil demand; Risk of OPEC + alliance modifying production plan; The risk that OPEC + oil producing countries have insufficient production capacity and the production rate is lower than expected; The United States lifted sanctions against Iran, and the risk of Iran’s crude oil returning to the market quickly; The risk of US policy adjustment on shale oil production, environmental protection and financing; Risk of global 2050 net zero emission policy adjustment.
