OPEC + Russia Crude Exports Inch Up So Far This Month

Mar. 19, 2022 2:20 AM ETDBE, RJN, JJE, JJETF, USO, DBO, USL, BNO, OLEM, OILK, USOI, OLOXF, OILX101 Comments39 Likes


  • OPEC + Russia crude exports are up month-over-month.
  • Russia's crude exports have not been impacted yet.
  • Physical oil market has corrected the recent spike.
  • The real bull thesis is in the underperformance of all the other producers in OPEC+.
  • The market is still in a wait-and-see mode on Russian crude exports. If there's no material drop by mid-April, then the super spike scenario is out of the window.
  • Looking for a helping hand in the market? Members of HFI Research get exclusive ideas and guidance to navigate any climate. Learn More »

Business dialogue, military and oil agreement concept : National flags of Russia and Saudi Arabia on a table. A symbol of cooperation between two nations, Moscow / Kremlin and Riyadh, an Islamic state

William_Potter/iStock via Getty Images

The media has a way of hyping up a situation far worse or better than reality. In the case of Russian crude exports, it appears all that virtue signaling was just bogus from oil traders as the record discounts offered on Russian crude are pushing Russian crude exports near an all-time high.

Russian crude exports


So far in March, Russia is exporting an average of ~5 million b/d. This is higher than any month since 2019. It begs the question, will Russia crude really be impacted, or is the discount too enticing for traders to pass up?

Remember now that Russian energy exports are not sanctioned. China and India will be buying up any Russian crude offered at a 15 to 30/bbl discount, so in our view, the general ebb and flow in the oil market shouldn't be disrupted too severely.

From the trader's perspective, for every Suezmax you buy (~1 million bbls), you are making ~$15 to ~$30 million depending on the size of the discount. In addition, Urals are more attractive in this market environment today due to the distillate shortage, so you are really making more than that if you account for the refining margin spread. Putting it all together, free markets work, and the discounts should, in theory, entice enough oil traders to buy Russian crude.

The spike in Brent timespread followed by the immediate drop likely reflects the reality that Russian crude exports did not drop, if at all.

Brent timespreads


Now looking at the rest of OPEC, Saudi, UAE, and Kuwait are meaningfully ramping up exports.

Saudi, UAE, Kuwait


The jump in the big 3 along with Russia and Iraq have pushed OPEC + Russia crude exports higher m-o-m.

OPEC + Russia


But the increase in the aggregate is far lower than what the breakdown shows, and this is where the key insight is.



If you exclude Saudi, UAE, Kuwait, and Iraq, you can see that the rest of OPEC is actually showing lower crude exports m-o-m. Libya's outage is part of the reason, but the lack of capex over the last 7 years will result in further underperformance going forward. The market is not fully appreciating this fact just yet.

What does this mean for the oil market?

If Russia's crude exports remain high going forward, then the idea of a "super spike" is completely out the window. We will now be back to the old oil thesis, which is that oil demand this year will surprise the upside. In the near term, however, oil traders will have to come to reality with the fact that Russian crude exports aren't meaningfully disrupted. More traders will have to unwind the long trade resulting in backwardation to go down further, and oil prices staying in the correction territory.

While we are all for the bull thesis, if the data doesn't support the idea that Russian crude exports are meaningfully falling, then we have to reassess. In this case, the data does not support the narrative, and thus, we have to reassess the future path of oil prices.

For now, we still believe oil and energy stocks are in the correction/consolidation phase. We need to wait for more data and whether or not the current discount for Russian crude will hold. If buyers step in, we don't see any disruption, and as a result, the super spike scenario won't materialize. In case you missed it, here's our other write-up explaining the possibility of a super spike.

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