April 2 (Reuters) – Russian oil production cuts are imminent, three industry sources said on Thursday, as attacks in Ukraine on port infrastructure, pipelines and refineries reduced export capacity by 1 million barrels per day, or a fifth of total production.
Oil markets have been hit by unprecedented supply disruptions due to conflicts in the Middle East, and output cuts by Russia, the world’s second-largest exporter, will add to pressure on global supplies.
Last month, Ukraine stepped up attacks on Russian oil export infrastructure. In the worst drone strikes in more than four years of war, Ukraine targeted the Baltic ports of Ust-Luga and Primorsk in an attempt to cripple the Russian economy.
Three industry sources said at least 20% of Russia’s total export capacity was out of order, which was down from a peak of 40% in March but still enough to have an impact on Russia’s oil output, which is the world’s third-largest after the United States and Saudi Arabia. The sources spoke on condition of anonymity due to the sensitivity of the situation.
Oil pipeline system clogged with oil
A week ago, Russia’s main Baltic Sea port of Ust-Luga suspended oil exports due to drone attacks and fires. Sources say Russia’s oil pipeline system is choked with oil and storage space is full as Ukrainian drones target both export infrastructure and domestic refineries.
That means some fields will have to reduce output to avoid further flooding of the system, they said.
Russia has benefited from a surge in oil prices since the United States and Israel launched attacks on Iran in late February, but cuts in its energy output will still hurt since oil and gas account for a quarter of state budget revenue.
Pipeline capacity is limited
Even before the attacks on Baltic ports, Russia’s export capacity was already being squeezed because the Druzhba pipeline, which supplies oil to Hungary and Slovakia, has been suspended since January.
More than 80% of Russia’s oil is transported by Transneft, a state-controlled pipeline monopoly.
Oil transport companies and Russia’s energy ministry did not respond to requests for comment.
Sources said Transneft informed exporters that the Ust-Luga would not be able to load oil according to the original export schedule due to recent damage.
Transneft also said it was unable to bring into its system the full volume of oil from producers planning to export through Ust-Luga, one of the sources said.
The Organization of the Petroleum Exporting Countries said Russia’s oil production was 9.184 million barrels per day in February. The source could not say how much production might be cut.
