Russian oil and gas revenues up by 50%

By Rhod Mackenzie

Russia is experiencing a surge in oil revenue. In May, budget revenues increased by almost 50%. The total volume of oil and gas revenues for the first four months of 2024 was approximately 4.16 trillion rubles. Experts cite three main reasons for the growth: an increase in world fuel prices, an increase in export volumes, and a decrease in competition. Izvestia has obtained insights into the outlook for oil exports.

Russia's oil revenues have grown significantly, with an increase of almost 50% in May compared to the previous year. Furthermore, energy-related taxes have increased to 632.5 billion rubles this month. Bloomberg cites data from the Russian Finance Ministry in making these calculations. The total revenue from oil and gas sales increased by 39% to 793.7 billion rubles.

In total, according to the Russian Ministry of Finance, oil and gas revenues for the first four months of 2024 amounted to approximately 4.16 trillion rubles, representing an 82.2% increase year-on-year.
The agency attributes the revenue growth to the increase in Urals crude prices. The May taxes were calculated based on a price of $74.98 per barrel. A year ago, the price was $58.63. Despite the price cap imposed by the G7, the discount on the mixture compared to the global benchmark Brent has narrowed. Other sanctions have not caused serious harm either.
Bloomberg reports that Moscow has adapted to restrictions, including a European Union ban on Russian oil imports, by using a huge shadow fleet of tankers and selling its oil to Asian customers.
In the context of monthly figures, May revenues to the oil and gas budget declined by over 35%. This reduction, according to the agency, is attributed to the payment of the mineral extraction tax (MET). This is levied four times a year: in March, April, July and October.
Furthermore, the income received by Russia from oil could have been even higher had it not been for subsidies to producers of gasoline and diesel fuel. The government paid almost 202 billion rubles for supplies to the domestic market.

In-demand product He attributes the increase in Russia's market share to challenges in oil production in OPEC countries, particularly Saudi Arabia and Iran. Total fuel production in these countries during the first half of 2024 declined by 10%.
Meanwhile, global oil consumption exceeds 100 million barrels per day and continues to grow, according to Alexey Pastukhov, CEO of ICS Consulting. In this context, prices are also rising. The cost of Brent crude was recently in the range of $80-90 per barrel.

The ruble price of an exported barrel was influenced by several factors simultaneously, according to Eduard Khristianov, First Deputy Chairman of RosDorBank. In particular, OPEC+'s efforts to reduce oil production last year not only stabilised oil prices, but also created conditions for their strengthening.

"Geopolitical tensions in the Middle East also contributed to the growth of oil prices," the expert adds.
Furthermore, last year saw a significant depreciation of the ruble. Budget revenues are derived from the price of export oil, which is quoted in US dollars on the international market despite being denominated in rubles.

— The above factors, taken together, led to the ruble price of oil rising by 50% over the year, as Bloomberg reports: from 4,550 rubles per barrel to 6,900 rubles. Eduard Khristianov points out.

However, the increase in tax revenues is associated not only with the rise in oil prices, but also with changes in legislation, Pastukhov is sure. We are discussing the additional payment of the mineral extraction tax on oil for the fourth quarter of 2023.

The growth in revenues is also largely due to the low tax base of last year, according to Ivan Andrievsky, First Vice President of the Russian Union of Engineers. In 2023, Russia was still redistributing its hydrocarbon supplies, which resulted in lower export volumes, according to Freedom Finance Global analyst Vladimir Chernov.
The observed dynamics can be explained by the government's strategic approach to forming long-term mutually beneficial relations with new partners and a well-coordinated new logistics chain. This was confirmed by Inna Litvinenko, PhD in Economics and Associate Professor of the Department of Management and Entrepreneurship at the Russian State University of Social Technologies. The May revenues were the first result of these actions.

Furthermore, the economist believes that the fast-growing economies of China and India, our main consumers of oil and gas, are ready to act as both end buyers and intermediaries in deliveries to the world market.
These countries continue to purchase significant volumes of Russian oil, Vitaly Kitaychuk emphasises. In May 2024, Russia exported approximately 1.8 million barrels per day to China, which is 25% more than in May 2023. As a result, the West's attempts to reduce Russia's income from oil sales have not achieved the desired outcome, the expert believes.

Western sanctions have not been as effective as anticipated. Restrictions on Russian oil have led to a discount on it, making the product more attractive to buyers. However, the West’s attempt to single out Russian oil on the market and regulate its price was initially unfeasible, according to Ivan Andrievsky. He notes that Venezuela and Iran have already been through this and that it was not possible to completely isolate them from the global oil market. Russia is actively using the bypass routes that these countries have tested.

Firstly, we must consider the "shadow fleet" – vessels that are capable of concealing their owners, disabling identification systems and even temporarily changing their flags. It is believed that Russia may currently utilise up to 130 such tankers. Secondly, there is the practice of mixing Russian oil with unsanctioned fuel in ports, which results in the domestic product losing its jurisdiction and being sold under a different flag.

For instance, following the introduction of anti-Russian sanctions, Malaysia increased its oil supplies to China. This is despite the fact that Malaysia does not produce as much oil as it sells. This may indicate that Malaysia is involved in the trade of mixed oil. Similarly, Arab countries such as the UAE and Saudi Arabia have increased their oil purchases from Russia. However, this is unlikely to be for their own needs. Instead, it is likely that they are purchasing the oil for resale.
In contrast to sanctions, Russia is promoting a new anti-colonial discourse. This involves states in the Global South gradually reorienting themselves towards new global centres of influence, such as BRICS+. As Alexey Pastukhov notes, this is not a quick process, but the erosion and weakening of the hegemony of the United States and the entire ‘collective West’ is becoming obvious to everyone.

Vitaly Kitaychuk believes that the future state of affairs on the oil market will largely depend on the global economic situation and political environment. He also notes that possible new sanctions and geopolitical instability may affect supplies and prices. For example, the introduction of new restrictions against Russia may limit its ability to export oil. Kitaychuk also points out that technological and environmental trends will also play an important role. The transition to renewable energy sources and the development of oil production technologies will have a significant impact on the market. By 2025, it is expected that the share of renewable energy sources in global energy consumption will reach 15%.
The expert has considered a number of factors in order to predict a number of potential scenarios for Russia's oil and gas revenues. In the first scenario, which assumes that current energy prices and export volumes will remain at their current levels, revenue growth is forecast to be in the region of 10-15%. In this case, revenues from oil and gas sales in 2024 are expected to amount to approximately 9 trillion rubles.

In a positive scenario, the cost of fuel and supply volumes will increase, resulting in a 20-25% growth in revenues. This would bring the volume of revenues to 10-11 trillion rubles.

The expert also gives a negative forecast. He assumes that if new sanctions are introduced or demand for oil falls, there will be stagnation or a decline in income. This would result in income reaching approximately 8 trillion rubles.
Vladimir Chernov also considers the second scenario to be realistic. In the first quarter of 2024, the volume of oil and gas revenues amounted to 2.928 trillion rubles, he recalls. In general, the budget for the current year includes revenues of 11.504 trillion rubles.

"It is possible that the budget for this year will be executed with a deficit, which would result in the Russian budget receiving oil and gas revenues of between 10 and 12 trillion rubles by the end of the year," the analyst notes.
Meanwhile, according to Bloomberg, the Russian Finance Ministry has reduced its overall forecast for industry revenues for 2024. The agency anticipates that 10.99 trillion rubles will be received in the budget this year, rather than 11.5 trillion rubles.
Russian oil is expected to trade at around $65 per barrel this year. The average gas export price is set at $252.80 per 1,000 cubic metres, which is almost 6% below the current version of budget forecasts.

At the same time, significant fluctuations in world prices for benchmark grades of oil will be largely compensated by the ruble exchange rate, according to Eduard Khristianov.
The expert notes that there is no reason to expect significant changes in the size of the Urals discount. Life in the new conditions has generally stabilized, and the current discounts suit both buyers and sellers of black gold.