Russia’s crude oil output dropped to 8.962 million barrels per day (bpd) in January, falling short of its OPEC+ commitment by 16,000 bpd. Despite this, Russia has pledged to submit a revised schedule for production cuts to address past overproduction, although no updated plan has been released as of yet. The country faces challenges in cutting output due to harsh winter conditions and the complex geology of its oil fields.
In response to fresh U.S. sanctions targeting key Russian oil firms, Russian refineries are processing more crude in an effort to boost fuel exports. The sanctions, introduced by the Biden administration, specifically target Surgutneftgas and Gazprom Neft—two major Russian oil producers responsible for 25% of the country’s oil exports. These companies collectively shipped an average of 970,000 bpd in 2024. A Russian industry source stated, “We have to utilize oil processing as much as we can in order to use (the sanctioned) oil.”
The sanctions have also caused disruptions for traders and middlemen supplying Russian oil. According to Bharat Petroleum CFO, Vetsa Ramakrishna Gupta, offers for March cargoes have stalled as traders, facing uncertainty from the latest sanctions, have urged buyers to wait. “We are not expecting the similar number of cargoes that we used to get in the months of December and January,” Gupta told.
Commodity experts at Standard Chartered predict that the recent uptick in oil prices is likely to continue, supported by a reduction in Russian oil supply due to the expanded sanctions. The new restrictions have effectively tripled the number of Russian crude tankers directly sanctioned, impacting around 900,000 bpd. Although Russia is expected to circumvent the sanctions by deploying more shadow tankers and ship-to-ship transfers, analysts at Standard Chartered estimate a displacement of 500,000 bpd over the next six months.
The ongoing sanctions and production challenges highlight the increasingly complex landscape of global oil markets, with Russia’s crude exports facing mounting hurdles in both production and distribution.