Russian Oil Refining: in the Crosshairs

This OIES Energy Comment attempts to assess the impact of Q1 drone attacks on Russian oil refineries and to give some guidance for Q2 2024.

Key takeaways:

– We estimate that some 300 kb/d of crude processing was lost in 1Q24 on a gross basis, assuming unaffected refineries did not increase runs to offset losses at damaged sites, roughly 5% of total Russian refining capacity of 6.5 mb/d.

– In terms of products supply, we find that diesel output was the most severely hit in 1Q24 accounting for 26% of total disruptions on average and 5% of total Russian diesel supply by March.

– Our analysis suggests that the Russian refinery disruptions due to the drone attacks in Q1 could have been less severe than other third-party estimates. This could be the case because critical equipment avoided the worst of the damage; Russia was swift to repair damage; affected refineries adjusted timings for scheduled maintenance; refineries were able to increase runs through secondary units or kick-start reserve capacity; and/or undamaged refineries ramped-up runs.

– Looking ahead to Q2, all other things equal, Russian crude runs could recover close to a year ago levels ending-Q2 in-line with official targets, but if drone attacks were to resume at the intensity seen in March, then the Russian refinery system could remain under pressure.

–  These results are also reconciled with Russian supply data, that saw minimal impact on Russia’s crude production and processing, as well as crude and products exports in Q1.

– Whether the March rise in crude exports will continue in Q2 will depend upon the intensity of the ongoing drone attacks and disruptions in crude processing. But in any case, with Russia set to deepen its voluntary crude production cuts in Q2, allocating unprocessed crude to export streams won’t be a priority.

– Lastly, a sustained decline in Russian products exports in Q2 is not expected to have a significant impact on global middle distillate markets, similar to Q1, as we estimate that the market could weather a 10-12% decline in Russian product exports on a quarterly basis. However, with diesel output being the most impacted by the drone attacks, renewed attacks could sustain concerns over global middle distillate markets further into Q2 as diesel stocks decline and seasonal demand strengthens.

By: Andreas Economou , Bill Farren-Price