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Oil Price.com

Russia’s Oil Output Is Plummeting, And It May Never Recover

Editor OilPrice.com – May 4, 2022

Russian oil production is falling. In March, it shed half a million bpd, which by the end of April reached a full 1 million bpd, according to BP’s CEO, Bernard Looney. And this may well grow to 2 million bpd this month. These barrels may not be returning to the market any time soon.

As the European Union targeted a barrage of sanctions on Moscow, oil was excluded as a direct target but financial and maritime sanctions affected the industry. Now, the EU is proposing a full oil embargo, save for a handful of member states too dependent on Russian oil to comply, and this will mean a further loss of barrels at a time when the global oil market is already stretched thin.

“We could potentially see the loss of more than 7 million barrels per day (bpd) of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions,” the secretary-general of OPEC, Mohammed Barkindo, told the European Union last month.

This does not appear to have made any lasting impression on the decision-makers in Brussels, who are moving full steam ahead with the oil embargo. Meanwhile, alternative suppliers would struggle to fill the void left by Russian oil.

Russia expects it could lose some 17% of its pre-war oil production this year, Reuters reported last month, citing a document from the country’s economy ministry. The report noted this would be the biggest production drop since the 1990s—a tumultuous time for Russia following the breakup of the Soviet Union.

That would be close to 2 million bpd—a figure similar to Looney’s forecast and also to a forecast made by Rystad Energy about lost Russian oil production between 2021 and 2030. If the Rystad projections are right, the fallout from the EU oil embargo would be limited and most Russian production will simply be redirected as it already is. If, however, production declines more, this could see international prices spike much higher.

When European buyers started refusing to accept Russian oil cargoes, those cargoes had to return home to be stored somewhere. According to local reports, however, storage space is limited, and this has probably forced the idling of some wells, which if idled, can see their ability to produce in the future affected.

Related: Upstream Oil Industry To See Highest Profits Ever In 2022

But there is also danger ahead for Russia’s future production. This may also not materialize as previously planned because of the exit of Big Oil majors from the country, Dan Dicker, host of The Energy Word, told Yahoo Finance earlier this week. Their exit, combined with financial sanctions on Russian banks, will make developing new resources in eastern Siberia more challenging.

Meanwhile, OPEC is producing less, rather than more, oil, and U.S. producers are under fire from legislators for alleged profiteering from the oil price rally and struggling with shortages of materials, equipment, and workforce.

U.S. oil production will rise by only 800,000 bpd this year, according to the Energy Information Administration’s latest Short-Term Energy Outlook. That’s not good news for America’s European partners. It’s not good news for Americans, either, because it means prices will likely remain high.

Except for OPEC and the United States, there are few producers large enough to spare oil for Europe, if any. Brazil is expanding its oil production but its total stands at around 3 million bpd, which is what the EU was importing from Russia before the war in Ukraine began. That leaves the Central Asian producers, who are parties to the OPEC+ agreement and firmly within the Russian sphere of influence, too.

What all this means is that with the loss of 2 million bpd of Russian production, a lot of the world is in for prolonged oil price pain, which means all-price pain as well. The beneficiaries are China and India, who are buying Russian crude at a discount, with no logical reason for them to stop, despite threats from Washington. But Russia’s oil production could still fall by more than 2 million bpd.

“Europe’s dependence on Russian energy has been a deliberate and decades-long and mutually beneficial relationship. In this early phase of sanctions and embargoes, Russia will benefit as higher prices mean tax revenues are significantly higher than in recent years,” said Daria Melnik, senior analyst at Rystad Energy.

“Pivoting exports to Asia will take time and massive infrastructure investments that in the medium term will see Russia’s production and revenues drop precipitously,” she added.

With most producers constrained in their capacity to boost production fast, should this scenario play out, oil could become a lot more expensive with little in the way of downside pressure, including electric vehicles. Electric vehicles are about to experience a shortage of batteries and still higher prices. There are some really interesting times ahead.

By Irina Slav for Oilprice.com

Reuters

Mariupol evacuee fears for families still trapped under steel works

Alessandra Prentice and Joseph Campbell – May 4, 2022

• Tetyana Trotsak walks with her dog in front a hotel used as temporary shelter in Zaporizhzhia

ZAPORIZHZHIA, Ukraine (Reuters) – After two months in a bunker, Mariupol evacuee Tetyana Trotsak is feeling the sun on her face and staring up at the bright blue sky on her first day of freedom.

But she can’t forget the 42 people she believes are still stuck in a shelter they shared under Ukraine’s besieged Azovstal steel works.

The 25-year-old, her husband and parents were among the dozens of civilians who reached the Ukraine-controlled town of Zaporizhzhia on Tuesday after being evacuated from the plant in Russian-occupied Mariupol where other civilians and the city’s last defenders remain under siege.

Holding her lapdog Daisy to her chest, Trotsak looked around at the quiet street with wonder.

“To escape and be beneath the peaceful sky, look at it – blue and the bright sun. I think we’re all getting badly sunburnt because we got so little vitamin D,” she said on Wednesday after her first night above ground since early March.

“But I’m terribly worried about the civilians and wounded soldiers that are still there.”

Of the 56 people, including children, in their bunker, Trotsak knows of only 14 who were able to evacuate so far.

City authorities say around 200 civilians and more than 30 children are still trapped at the steel plant, whose vast network of underground bunkers has suffered repeated bombardment from encircling Russian troops.

LIFE UNDERGROUND

Trotsak, who works at a local power company, said her family decided to take refuge at Azovstal after a shell landed near their home, blew open the doors, and “made everything shake like jelly.”

They grabbed a few belongings and some bedding and moved into one of the plant’s shelters, pooling food with other families and making makeshift beds out of bits of wood. The cold, damp conditions made everything mouldy, she said.

As the weeks went by in March and sounds of fighting and explosions appeared to come closer, the group started losing hope they would soon be able to return to their homes.

“When the heavy shelling started and powerful strikes started landing near our shelter, we could feel the shaking just by sitting on the bed,” Trotsak said, recalling frantic efforts to find a way to light the pitch-black bunker after the attacks cut off power supplies.

Talking about their ordeal, she remained calm, tearing up only when she described how her family had to ask a Ukrainian soldier to kill their older dog Jerry, who was blind and suffering in the cramped shelter.

The soldier took the dog away and came back crying, Trotsak said.

A radio was their only connection to the outside world and in April they heard reports of international efforts to help trapped civilians in Mariupol. “This gave us more strength, it felt as if … we might get out and it would all be over,” she said.

But when the evacuation day arrived, there were not enough spaces for everyone. Trotsak’s family were encouraged to go in the first wave because her mother has asthma, she said.

“Go ahead, get to Zaporizhzhia and grab a table at a cafe and … we’ll join you for a pizza,” she recalled one of the people saying who remained behind.

“Of course it was terribly uncomfortable for us that we went first.”

The group picked their way through the rubble around the plant, escorted by three Ukrainian soldiers. There was so much debris that the walk to the waiting buses, which should have taken 15 minutes, took two and half hours.

“Walking past the plant the day before yesterday, we saw that everything was ablaze in black smoke,” she said. “God forbid more shells hit near the bunkers where the civilians are.”

The port city, which before the war had 400,000 inhabitants, has seen the heaviest fighting so far of the conflict, which Moscow calls a “special military operation” to disarm Ukraine and defend its Russian-speaking population from fascists.

Kyiv and its Western supporters say Moscow’s fascism claim is a baseless pretext for an unprovoked war of aggression that has driven more than five million Ukrainians to flee abroad.

Trotsak and her family are staying at a hotel that has been commandeered to house evacuees, but Trotsak does not want to stay long and take up space for the many Mariupol evacuees she hopes will soon arrive in the relative safety of Zaporizhzhia.

“It’s peaceful, no sounds of explosions thank god. And I hope there never will be here any kind of booms here, just fireworks and thunder.”

(Editing by Alexandra Hudson)

Ukrayinska Pravda

Two women killed by Russian bombs as massive assault on Azovstal continues

Valentyna Romanenko, Iryna Balachuk – May 3, 2022

ukrpravda@gmail.com (Ukrayinska Pravda) – May 3, 2022

Two women were killed and around ten people were injured in a massive aerial bombardment of the Azovstal steelworks by Russian occupation forces. As of 4:15 pm, the fierce assault on the plant continues. Source: Azov Regiment Details: In a video released on 3 May by the plant’s defenders, a man describes the effects of the Russian bombardment and says that the bodies of two women have been recovered from under the rubble.

The Azov Regiment has promised to help with excavations, as there may be more people under the rubble. Quote: “We are urgently calling for the swift imposition of a ceasefire and an extension of the evacuation of civilians to safe Ukrainian-controlled territories.” At 4:15 pm, Deputy Commander of the Azov Regiment Sviatoslav “Kalyna” Palamar reported that the assault on the plant was continuing and the defenders were doing everything they could to repel it.

Quote from Palamar: “As of this minute, a massive assault on the Azovstal plant is underway, supported by armoured vehicles and tanks, with attempts to land using boats and a large number of infantry. We will do all we can to repel this assault, but we are calling for immediate action to evacuate civilians.”

Background: On the afternoon of 3 May, Russian invaders launched an assault on the Azovstal steelworks, which is being defended by the Ukrainian Defence Forces in besieged Mariupol.

Reuters

U.S. relieved as China appears to heed warnings on Russia

Steve Holland, Trevor Hunnicutt and David Brunnstrom

May 3, 2022

WASHINGTON (Reuters) – Two months after warning that Beijing appeared poised to help Russia in its fight against Ukraine, senior U.S. officials say they have not detected overt Chinese military and economic support, a welcome development in the tense U.S.-China relationship.

U.S. officials told Reuters in recent days they remain wary about China’s long-standing support for Russia in general, but that the military and economic support that they worried about has not come to pass, at least for now. The relief comes at a pivotal time.

President Joe Biden is preparing for a trip to Asia later this month dominated by how to deal with the rise of China and his administration is soon to release his first national security strategy about the emergence of China as a great power.

“We have not seen the PRC provide direct military support to Russia’s war on Ukraine or engage in systematic efforts to help Russia evade our sanctions,” a Biden administration official told Reuters, referring to the People’s Republic of China.

“We continue to monitor for the PRC and any other country that might provide support to Russia or otherwise evade U.S. and partner sanctions.”

As well as steering clear of directly backing Russia’s war effort, China has avoided entering new contracts between its state oil refiners and Russia, despite steep discounts. In March its state-run Sinopec Group suspended talks about a major petrochemical investment and a gas marketing venture in Russia.

Last month, the U.S. envoy to the United Nations hailed China’s abstentions on U.N. votes to condemn Russia’s invasion of Ukraine as a “win,” underscoring how Beijing’s enforced balancing act between Russia and the West may be the best outcome for Washington.

Still, China has refused to condemn Russia’s actions in Ukraine and has criticized the sweeping Western sanctions on Moscow.

Trade volume between Russia and China also jumped in the first quarter, and the two declared a “no limits” partnership in February.

On Monday, Beijing’s Washington embassy issued a 30-page newsletter accusing the United States of spreading “falsehoods” to discredit China over Ukraine, including through a March press leak saying Russia had sought Chinese military help. The embassy noted that U.S. officials had since said they had seen no evidence of China providing such support.

Biden himself has not spoken of China helping Russia since telling reporters in Brussels March 24 that in a phone call with Chinese President Xi Jinping, he “made sure he understood the consequences.”

Secretary of State Antony Blinken told the Senate Foreign Relations Committee last week China is dealing with the “significant reputational risk” of being Russia’s ally and that “for now we’re not seeing significant support from China for Russia’s military actions.”

Biden is to visit Tokyo and Seoul in what will be his first trip to Asia as president – one that won’t include a stop in China. He’ll meet with Indian and Australian leaders too, during a ‘Quad’ meeting in Tokyo.

China has made Russia a key part of its foreign policy strategy to counter the West. Biden aides were worried Xi was planning to provide direct support to Russian President Vladimir Putin as his campaign in Ukraine faced fierce setbacks, one U.S. official said.

They were heartened this has not happened so far, but Washington and its allies are continuing to closely monitor the level of assistance, the official said.

Bonnie Glaser, an Asia expert at the German Marshall Fund of the United States, said stark warnings by the U.S. and European Union have paid off so far.

“There has been consistent messaging that if China does so it will face severe consequences. It appears that so far, the Chinese have not. It is feasible that the Chinese planned to provide military assistance and changed their minds,” she said.

However U.S. officials remain concerned about China’s refusal to condemn Russia’s actions in Ukraine and what they say is its continued parroting of Russian disinformation.

Deputy Secretary of State Wendy Sherman said on April 21 that Beijing had “repeatedly drawn false equivalencies between Russia’s war of aggression and Ukraine’s self-defensive actions.”

She added: “Let’s be clear, China’s already doing things that do not help this situation.”

(Reporting By Steve Holland, David Brunnstrom and Trevor Hunnicutt; Editing by Heather Timmons, Richard Pullin, William Maclean)

Fox News

Russian military is now storming Mariupol steel factory, Ukrainian forces say

Greg Norman – May 3, 2022

Ukrainian forces at the Azovstal steel factory in Mariupol said Tuesday that Russia’s military is now storming the complex.

The move comes almost two weeks after Russian President Vladimir Putin ordered his military not to storm the plant, but rather block off the last pocket of resistance in the besieged Ukrainian city.

Asked about reports in Ukrainian media that the plant was being bombarded, Sviatoslav Palamar, the deputy commander of the Azov Regiment that is holed up there, said “it is true.”

Vadim Astafyev, a Russian Defense Ministry spokesman, said Tuesday that Ukrainian fighters holed up at the plant “came out of the basements, took up firing positions on the territory and in the buildings of the plant.” Astafyev said Russian forces along with rebel forces from Donetsk were using “artillery and aircraft… to destroy these firing positions.”-

Mariupol Mayor Vadym Boychenko said earlier Tuesday that more than 200 civilians are still at the Azovstal factory following United Nations-assisted evacuation efforts there in recent days, according to Reuters.

Mariupol patrol police chief Mykhailo Vershinin also was quoted by Ukrainian television on Tuesday as saying that the Russian military “have started to storm the plant in several places.”

Denys Shlega, a commander of a brigade of Ukraine’s National Guard at Azovstal, said “the enemy is trying to storm the Azovstal plant with significant forces using armored vehicles.”

In a statement Tuesday, the U.N. said “101 civilians have successfully been evacuated from the Azovstal steel plant in Mariupol and other areas in a safe passage operation coordinated by the United Nations and the International Committee of the Red Cross.”

“Thanks to the operation, 101 women, men, children, and older persons could finally leave the bunkers below the Azovstal steelworks and see the daylight after two months,” said Osnat Lubrani, the U.N. Resident & Humanitarian Coordinator for Ukraine. “Another 58 people joined us in Manhush, a town on the outskirts of Mariupol.

“We have accompanied 127 people today to Zaporizhzhia, about [143 miles] northwest of Mariupol, where they are receiving initial humanitarian assistance, including health and psychological care, from UN agencies, ICRC and our humanitarian partners,” she added. “Some evacuees decided not to proceed towards Zaporizhzhia with the convoy.”

The Associated Press contributed to this report.

Business Insider

Ukraine invasion made Russia’s military ‘significantly weaker’ despite its defense budget doubling in the past 20 years, UK says

Sophia Ankel – May 3, 2022

• Russian defense expenditure has grown significantly over the years, the UK said.
• But the invasion of Ukraine has made the Russian military “significantly weaker,” it said.
• Russia’s military is falling short in Ukraine, with reports describing low morale and elite troop losses.

The invasion of Ukraine has made Russia’s military “significantly weaker” despite its defense budget doubling in the past 20 years, the UK said Tuesday.

“Russia’s military is now significantly weakened, both materially and conceptually, as a result of its invasion of Ukraine,” the British Ministry of Defence tweeted in its daily intelligence report on Russia’s invasion.

“Recovering from this will be exacerbated by sanctions. This will have a lasting impact on Russia’s ability to deploy conventional military force,” it said.

The ministry added that while Russia’s defense budget had doubled from 2005 to 2018 — with major investments made in air, land, and sea capabilities — its new equipment has not helped it to “dominate Ukraine.”

In 2008, Russia’s then-defense minister, Anatoliy Serdyukov, announced a major structural reorganization of the country’s armed forces, calling it the New Look military modernization process.

The reorganization came after Russia’s weeklong war with Georgia that same year showed that its military still lacked operational capacities, according to the International Institute for Strategic Studies.

But since the start of Russia’s invasion of Ukraine on February 24, multiple reports have described how Russian forces were still falling short in the face of staunch Ukrainian resistance.

The head of Ukrainian intelligence, Kyrylo Budanov, told the Ukrainian news outlet The New Voice of Ukraine on Monday: “All they spent money on was to show the greatness of the Russian army in the world. Now we have seen that there is no greatness at all.”

Ukraine’s defense ministry also said last month that Russia was failing to recruit new troops because potential conscripts were too afraid of dying in battle.

Budanov, the intelligence chief, suggested that Russian President Vladimir Putin could officially declare war on May 9 as a way to prepare for mass mobilization.

Putin is under pressure to demonstrate he can show a victory by May 9, a Russian holiday that commemorates the defeat of Nazi Germany in 1945 and is usually marked with a military parade in front of the Kremlin.

Daily Kos

Ukraine Update: Surprise Ukrainian gains north of Kharkiv could impact battle for Donbas

Mark Sumner, Daily Kos Staff – May 03, 2022 

The big story today is that something not small happened over the last week. Since Russia’s unprovoked invasion of Ukraine moved to what is being called the Battle of the Donbas, most actions seem to have taken place at a rate that roughly approximates the growth of fingernails. Here and there Russian forces have managed to advance, but far more often attempts to dislodge Ukrainian forces from towns and villages have been repulsed. 

Sadly, because the area of the battle is close to the Russian border, Russia is able to defend the airspace with both planes and anti-aircraft systems working from across the border. That makes it difficult for Ukrainian aircraft to operate in the area and give Ukraine the kind of air support that would allow them to make large-scale counter attacks. So Russia keeps shelling, then tries to move forward. Then it shells some more. Russian losses are terrible. Ukrainian losses are also painfully high. But Ukraine has multiple prepared positions against just this kind of attack, and Russia has nothing like the ratio of forces necessary to overwhelm Ukrainian positions. 

So, in most of eastern Ukraine, the fields are getting heavily fertilized with blood, and the muddy roads are getting heavily strewn with wreckage, but not much else is happening that looks like progress for either side.

Which only serves to make what’s happening north of Kharkiv more exciting.

Over the last week, Ukraine has mounted a steady counteroffensive directed at troops north of Kharkiv and west of the Siverskyi Donets River. Starting with Russian forces right on the doorstep of the battered city, Ukraine has pushed back through the suburbs, then into outlying towns and villages along multiple roadways. On the west, they’ve pressed in to take the town of Udy, less than 5 miles from the Russian border. 

In what may be one of the most impressive moves of the second phase of the war, Ukrainian forces bypassed Russian forces in multiple villages, took a series of small roads, and entered the town of Staryi Saltiv on Sunday—a move so unexpected that when I first got reports of Ukrainian forces in the town, I disregarded them. After all, there were several other areas with Russian occupation “in the way.”

But the Ukrainian move into Staryi Saltiv was real, and though fighting in the town continues, it seems that Russian forces that were south of that location, but on the west bank of the Donets, have gone missing. In other words, they’ve withdrawn north or south before they could be cut off and chopped up in an isolated position. As a result, a whole chain of villages appears to have come back into Ukrainian-controlled territory without the need for a step-by-step fight.

Reports have indicated that the troops assigned to this area by Russia just are not very good, or that some of them are forced conscripts put in place by the Luhansk “republic.” Whatever the case, Ukraine has been able to shift them roughly 40 kilometers (25 miles) since the counterattack out of Kharkiv began. 

However, it’s not clear that this will continue. Russian forces may be falling back in chaos, with Ukrainian forces chasing them to the border. On the other hand, they may be falling back behind lines being held by more stalwart troops, where they can get their act together and be plugged back into the line.

For Russia, the threat is not so much that Ukrainian forces will march to the border and just keep going. The threat is right there in Staryi Saltiv. That’s because this town is the site of a highly strategic bridge crossing. [Correction: The Ukrainian army blew up that bridge back on Mar 5 during the early stages of the invasion]. If they could push 15 miles north from there, they could reach Vovchans’k, a critically important road and rail junction. All the men and material coming in from Belgorod (20 miles northwest) passes through this point. As it stands, occupying Staryi Saltiv puts Ukrainian forces within artillery range of Russia’s major entry point.

These actions seem improbable. Even laughable. But then, so did the possibility of Ukraine suddenly showing up in Staryi Saltiv in the first place. Right now, pro-Ukraine Twitter is full of tweets like this one:

Meanwhile, pro-Russian Twitter is full of claims that the territory taken by Ukraine had “no military value,” that Russia only fell back to more important positions, and that by doing so it freed up forces to be used elsewhere. 

Right now, the fog of war over what’s happening at Staryi Saltiv is a real pea-souper. But as we go through today, maybe it will be possible to tell what’s happening. If Ukraine continues to advance along those other roads moving north of Kharkiv, it may signal a general Russian withdrawal from the area west of the Donets. If Ukraine reports that it has put forces on the east side of that bridge, it will be a genuinely big deal—one that’s likely to demand Russia turn some force around from other efforts to secure its rear. 

One thing to watch for soon: Look for what happens in the town of Shestakove and village of Fredirivka north of Kharkiv. These towns are sitting on a much better roadway between Kharkiv and Staryi Saltiv. If Ukraine really intends to move a lot of force in that direction, expect these towns to become the focus of some attention Real Soon Now.