On Friday, Russian president Vladimir Putin spoke with Saudi Arabia’s Crown Prince Mohammed bin Salman to discuss OPEC’s recent output cuts. Though Russia isn’t a core part of OPEC, the country, along with others, works closely with the organization’s member nations.
And, despite being sanctioned and shunned by the West over its invasion of Ukraine, Russia’s energy industry is still finding a market for its products.
Matt Smith, lead oil analyst for the Americas at Kpler, explains the country is keeping its footing in the global energy market. Listen to the story above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: You know, in any other scenario, it would be understandable why Russia would be so concerned about OPEC’s price cuts. I’m a little curious, though, where is Russia finding a market for its oil?
Matt Smith: Well, we’re seeing a lot of this Russian crude going into predominantly India and China. And so a lot of it has dropped off from going into Europe, but they have found a home for instead. So on the aggregate, you’re still seeing these crude exports holding up. They’re just essentially going to other destinations.
And I’m curious, what was Vladimir Putin wanting to clarify with Saudi Arabia’s crown prince?
Well, I think there’s some some concerns here, right, from the perspective that Saudi Arabia cut production or led the charge to cut production last October, and then they’ve done so again at the beginning of this month. But they’re the ones that are taking the burden of these cuts. We think that they’ve already part of those cuts in recent months because they’re concerned about the demand side of the picture. But at the same time, Saudi needs to get Russia on board because Russia and Saudi are two of the largest producers, along with the U.S. They’re the largest crude producers in the world. And so, you know, you can’t have Saudi Arabia and other core OPEC members cutting production while Russia just continues to do whatever it likes. And so I suspect that that call was perhaps just to try and encourage the Russians to hold back on their crude exports, hold back on their production because their refined products, exports are really strong as well. So even though their revenues may be being cut, Russia is still pushing out a lot of volume here.
Let me ask you about the impact of those cuts a little bit closer to home. With OPEC’s reduction in production, you would expect, I suppose, West Texas intermediate prices for per barrel to start to rise quite a bit. But it’s my understanding it remains below, what, $80 a barrel? What’s going on?
Yeah, exactly. And so we saw this initial pop in prices when this surprise announcement came out. But that’s what typically happens, right? You see this initial pop and then it gets faded. And that’s exactly what we’ve seen throughout April here. And so we’re going to have to see the cuts in production from OPEC+ coming through. But also on the demand side, you know, we’re not seeing the demand weakness yet, but we may do in the months ahead here. And I think that’s why the Saudis have got ahead again of trying to cut production ahead of potential demand weakness, because like I mentioned, they did that in October and it turned out to be true. The European economy and the U.S. economy is surely going to be slowing in the months ahead here, just because we’ve had so many rate hikes in the last year.
Let me ask you about the probabilities here. I mean, you were talking about how Russia is, you know, sending oil to places like India and China. To what extent are refined versions making their way back to places like Europe where there are these sanctions in place and being enforced?
Absolutely that is happening. And so for refined products, Russia seems to be finding a new home for its refined products. That’s diesel and gasoline. So into North Africa, as an example. But we’ve also seen an increase in to Brazil and consistently over the last three months. And Brazil is one of the leading destinations for U.S. diesel exports, hence as Russian flows are pushing in there, U.S. volumes have come under pressure. So essentially, they’re stealing market share from U.S. exporters.
