Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Oil Exports Jump to 14-Year Highs

Spurred by massive foreign debts and the lure of higher than expected world oil prices, oil producers across Russia and the former Soviet Union have boosted their exports to levels not seen for 14 years, according to a recently released industry report.

An "astonishing" 3.94 million barrels per day of crude and refined oil products gushed out of the region during May, the International Energy Agency, or IEA, announced last Friday, Reuters reported.

Despite Russian government assurances that it would cut exports in sympathy with OPEC, a large rise in oil exports had been expected in response to higher oil prices. However, the big jump in May exports was also explained to a large extent by oil firms' big debts, the IEA said.

"More than 50 percent of oil exports are reportedly collateralized to secure hard-currency loan repayments to Western banks," the energy watchdog said.

However, Russia's Fuel and Energy Ministry on Tuesday insisted it would swim against the tide, vowing to stay firm on its "political commitment" to cut second quarter crude exports by 100,000 bpd as compared to outbound volumes in the fourth quarter of 1998. That declaration was Russia's response to the decision by the Organization of Petroleum Exporting Countries - of which Russia is not a member - to slash its oil exports by about 2 million bpd from April onward.

Surprisingly, official Russian crude exports dipped 136,000 bpd in May compared to April exports to just 2.3 million bpd, oil information agency Petroleum Argus reported. The biggest export cuts occurred at Novorossiisk and Lithuanian directions. That figure was less even than the 2.43 million bpd figure for crude exports in May 1998, when oil was priced considerably lower than its current level.

However, Russia's promised 100,000 bpd cut covers only exports of crude oil, and much of the increase in exports last month was due to refined products - so much so as to send supplies down to scarcity levels and spark major price rises at the gas pump.

In May fuel oil exports spiked up by 23 percent to 2,462 metric tons, while gasoline shot up by 17 percent to 338,000 tons. Diesel exports has also recorded a minor increase to the worthy level of 2,412 metric tons for the month, according to Petroleum Argus.

St. Petersburg, Krasnoyarsk and their surrounding hinterlands have suffered fuel shortages, lines at filling stations and price rises over the past few weeks amid talk that the export levels have been sufficiently high to starve the domestic market.

Those price rises will play a large role in an expected decline in Russian exports than any attempt on the Russian government's part to stem the flow, analysts said Tuesday.

"There is no physical constraint on products' exports, but it is becoming less economically worthwhile," said James Henderson, an oil analyst with MFK Renaissance brokerage. He added that extra oil products' volumes would stay in Russia as domestic prices went up.

That makes crude exports more attractive than refined oil exports, which often must travel great distances by costly rail transport to the market. But the government has far more capacity to act on crude exports.

"The authorities will implement administrative measures to oil exporters' access to the pipelines," Fuel and Energy Ministry spokesman Oleg Rumyantsev said Tuesday in a telephone interview.

As part of its plan to freeze crude export at 28.7 million metric tons for the second quarter, the ministry has already incorporated a pledged cut of 1.2 million tons of crude exports in the June export schedule, Rumyantsev added.

The booming exports of Russian oil products have had little discernible impact on global oil market sentiment. Despite being the world's third biggest oil exporter Russia accounts for just 3.5 percent of the roughly 73 million bpd crude oil market.

European oil benchmark Brent was traded at $16.01 per barrel Monday, while, Russian export blend Urals was quoted at $15.21 per barrel in northwestern Europe including cost, insurance and freight.

Early this year both benchmarks were traded at the level of about $10 to $11 per barrel. On Tuesday Brent was quoted at $16.96 per barrel during the trading session.

Oil companies sell crude in Russia for 800 to 1,100 rubles per metric ton, a rate of $4.50 to $6.20 per barrel that is far below world market rates, Kortes market agency reported recently.