In March, the International Energy Agency (IEA) predicted a decline in oil production in Russia due to Western sanctions and problems with exports by 3 million barrels. In April, the IEA had to adjust the forecast. Now, the agency expects a reduction in production by 1.5 million barrels in April and 3 million barrels in May.
Russian Deputy Prime Minister Alexander Novak announced that in April, the Russian oil production would be reduced by 4-5% compared to March (11 million barrels per day), that is, by a maximum of 550,000 barrels per day. At the end of April, Finance Minister Anton Siluanov said that, in general, in 2022, oil production in Russia could fall by 17% (1.87 million barrels per day).
As per the Russian media, compared to 2021, the mineral extraction tax (MET) and the additional income tax (ATD) if oil production dropped by 550,000 barrels per day, the Russian budget will lose about 365 billion rubles. If production falls by 1.5 million barrels per day, then losses will amount to 996 billion rubles, by 1.87 million barrels – 1.24 trillion rubles, and by 3 million barrels per day – by almost 2 trillion rubles. The budget revenues in 2021 amounted to 25.3 trillion rubles. And there is also an export duty on the supply of oil and petroleum products abroad and value-added tax (VAT). High oil prices will offset part of the losses relative to last year’s results; since the beginning of 2022, they have grown by 20%, but also because of this, shortfalls in treasury revenues will also increase.
Russian experts believe that Russian officials’ forecasts are closer to reality than the IEA forecast. In May 2022, the level of production in Russia will remain at planned levels in a positive scenario and will decrease to 5% in a moderately negative scenario.
The forecast figures from the IEA look more gloomy than they actually are, say the analyst. The forecasts of the IEA and other industry organizations regarding the oil and gas market do not come true very often, the analyst said. But IEA has no such goal of exact prediction, and its task is to inform investors about current market trends.
Russian production may decline within two to three months by about 2 million barrels from the level of early 2022, that is, up to 9 million barrels per day, as per the Russian analysts. The reason is difficulties with the export of oil and oil products, as well as weakening demand in the domestic market. The IEA forecast could come true if external restrictions become more stringent.
According to Bloomberg, Russian production from April 1 to April 19 was 10.11 million barrels per day, which is 8.2% lower than in March. The figure includes oil and gas condensate. According to Reuters, Russian oil and gas condensate production in mid-April fell below 10 million barrels per day (the lowest level since July 2020).
At the same time, it is now very difficult to accurately assess the volume of production and sale of Russian raw materials due to the fact that the Russian Ministry of Energy has ceased to publish official statistics on the production and export of oil and gas as the information can be used as additional pressure on the Russian market and its participants.
To assess the reliability of the IEA forecasts, one can also add that the (Organization of the Petroleum Exporting Countries) OPEC + technical committee has refused since February the agency’s data in assessing oil production by OPEC countries due to underestimation of production indicators in the oil cartel countries. This was done, according to OPEC, to increase supply from the OPEC + alliance. In fact, this became an accusation of political engagement.
The IEA is a consultant to the Organization for Economic Cooperation and Development (OECD), which unites the most developed countries, which account for more than 45% of the world’s consumption of petroleum products. One of the agency’s tasks is to warn of possible oil supply disruptions, so it tends to overestimate the risks from this side.
Some experts say that IEA forecasts have been faulty for a long time. For example, IEA forecasted the prospects for the coal and oil industries in 2020 at the peak of the pandemic and gave a rosy picture of renewable energy sources (RES). Experts believe it is simply impossible to take seriously the predictions of the organization, which easily twice changed the short-term forecast for oil production in Russia by more than 1 million barrels per day in one month.