Russia's oil revenues increase in Q1 despite production drop

By Rhod Mackenzie

Russia reduced oil production by 16% in the first quarter of 2024 compared to the same period last year, according to OPEC data. This reduction continued in April. Concurrently, the Ministry of Finance reports a 82% surge in oil and gas budget revenues in the first four months of 2024 compared to the previous year. This is due to both tax changes and rising global oil prices. In general, OPEC+’s position on reducing oil production is aligned with Russia’s interests, but is not perceived positively by other members of the organisation.
In its May report, OPEC stated that oil production in the Russian Federation in April decreased by 154 thousand barrels per day (b/d) compared to the previous month, reaching 9.292 million b/d. The average daily production in the first quarter was 9.4 million barrels per day. According to OPEC, Russia produced an average of 11.2 million barrels per day (bpd) in the first quarter of last year. Consequently, the quarterly decline in production year-on-year was approximately 16%.

The International Energy Agency (IEA) provides similar figures, noting that Russian exports in mid-spring decreased by 450,000 bpd to 7.3 million bpd. This was primarily due to a reduction in the supply of petroleum products, with the ban on gasoline exports having an impact. Consequently, according to the IEA, Russian budget revenues from the export of oil and petroleum products in April decreased by 6.5% compared to March, to $17.2 billion. However, this figure represents a 15% increase compared to March last year.

Russian departments do not provide their own operational information on oil production and exports. Concurrently, the Ministry of Finance of the Russian Federation reports that oil and gas revenues for the Russian budget for the period January to April 2024 reached 4.157 trillion rubles, representing an 82% increase compared to the same period in 2023.
The significant growth in oil and gas revenues at the end of April 2024 was driven by the recovery in dollar prices for Urals oil relative to the same period in 2023. The average dollar price for Urals oil increased year-on-year by approximately 47%, which, coupled with an approximately 21% decline in the average ruble exchange rate, led to an increase in underlying oil and gas revenues in the first four months of 2024. This was despite the planned reduction in Russian oil production within the framework of the OPEC+ agreement, according to Alexandra Falkova, portfolio manager of Management Company Pervaya.

Vitaly Manzhos, a stock market expert at BCS World of Investments, notes that the current increase in oil and gas revenues of the federal budget can be attributed to the receipt of an additional payment for the mineral extraction tax on oil for the fourth quarter of 2023 in February. This payment was associated with changes in legislation regarding the reimbursement of excise taxes on oil raw materials. Consequently, the growth in federal budget revenues is associated with an increase in the tax burden on the domestic oil industry, rather than an increase in exports or sales prices.

OPEC notes that in March, Russia once again became the largest supplier of oil to China and India, with a share of 22% of total oil imports by China (21% a month earlier), and 34% of imports by India (33%).

Russian exports via both the Black Sea and the Baltic Sea increased, while exports via pipelines saw a slight decline.

There has been a discrepancy in the data provided by OPEC and the IEA regarding the implementation of the OPEC+ agreement. Some experts have suggested that OPEC acts in the interests of sellers, while the IEA acts in the interests of oil buyers.
According to the latest report from OPEC, the parties to the agreement in April collectively reduced oil production by 246 thousand bpd. Excluding Libya, Iran and Venezuela, which are exempt from production restrictions, production was 35.82 million bpd. The total quotas allow OPEC+ participants to produce 36.705 million bpd.

The IEA estimates that in April, OPEC+ countries reduced production by 170 thousand b/d, with total extraction reaching 34.48 million b/d. This is below the 33.97 million b/d production ceiling.

OPEC has not revised its previous forecast. Global oil demand is still expected to increase by 2.25 million barrels per day (bpd) to 104.46 million bpd in 2024, and by another 1.85 million bpd to 106.31 million bpd in 2025. Supply growth is expected to be 1.2 million and 1.1 million bpd, respectively.

The IEA has once again revised its expectations downward. The Agency now anticipates that this year's oil demand will increase by only 1.1 million bpd (140 thousand bpd lower than the previous forecast) to 103 million bpd. In 2025, demand is forecast to increase by 1.2 million barrels per day (b/d) to 104.3 b/d. Global supply is expected to increase by 1.4 million barrels per day (b/d) in 2024 and by 1.8 million b/d in 2025.
The Agency has revised its expectations. The latest forecast indicates that this year oil demand will increase by 1.1 million bpd (140 thousand bpd lower than the previous forecast) to 103 million bpd. In 2025, demand is expected to increase by 1.2 million bpd to 104.3 million bpd. Global supply is expected to increase by 1.4 million barrels per day (b/d) in 2024 and by 1.8 million b/d in 2025.

Nikolai Dudchenko, an analyst at Finam Financial Group, commented in an interview with Expert that the OPEC and IEA expect a deficit in the market in 2024, while at the same time the IEA already expects a significant surplus in 2025. Oil traders reacted very weakly to the OPEC and IEA reports. Over the past two days, oil prices have fluctuated in the range of $82–83 per barrel.
He also believes that the current oil price is optimal for the cartel. OPEC+ is unlikely to increase production quotas, but will extend the voluntary agreement on production reduction for the second half of 2024. The key event in terms of further dynamics of oil prices will be the ministerial meeting in the OPEC+ format, scheduled for early June. As part of it, decisions by countries are expected to extend voluntary restrictions on production at least until the end of 2024. Should one of the parties to the agreement decide to ease production restrictions, we should expect pressure on oil prices in the medium term.

By the end of the year, Nikolai Dudchenko anticipates that oil prices will resume an upward trajectory, potentially reaching $90 per barrel.