-Product exports fall to 10-month low as diesel supplies tighten

-Some Russian fuel exports also traded above the cap

-Turkey extends its lead as Russia's biggest buyer of products.

Russia's seaborne oil exports fell to an 11-month low in August as heavy refinery maintenance hit petroleum product exports and production cut pledges and Black Sea tensions continued to restrict crude flows.

Total Russian crude and petroleum product exports averaged 5.27 million b/d, the lowest level since September 2022 and 650,000 b/d below pre-war levels, according to S&P Global Maritime Commodities data.

Shipments of Russian-origin seaborne crude oil averaged 3.0 million b/d in August, little changed from the current month but down about 800,000 b/d from the April-May average and below the pre-war average of 3.1 million b/d. CAS data shows. Crude exports to India, currently Russia's biggest oil buyer, fell to a six-month low in August, while Russian crude flows from the Black Sea also fell sharply due to heightened military tensions in the region, the data showed. However, increased crude shipments through Russia's Baltic and Arctic routes offset the reduced Black Sea flows. In addition, data showed that Russian oil product exports fell to a 10-month low of 2.27 million bpd, down from a post-war high of 3 million bpd in March, as the country's refineries remained at seasonally high levels.

The slump in exports since May also comes as markets are assessing whether Moscow is keeping its August pledge to reduce exports by 500,000 b/d to help support global oil prices. In addition, Moscow has pledged to cut crude exports by a further 300,000 b/d in September, a move that is expected to further tighten the market for sulfur-containing crude.

Russia has pledged to cut crude production by 500,000 b/d from March through the end of the year, but most market watchers don't expect Russia to deliver on its promises in light of a surge in exports earlier this year.Analysts at S&P Global Commodity Insights expect Russia's crude output to remain around 94-9.5 million b/d through 2024.The Russian government has also pledged to cut crude production by 500,000 b/d from March through the end of the year, but most market watchers don't expect Russia to deliver on its promises in light of a surge in exports earlier this year.

Since July 11, the spot price of Russia's main Urals export crude has been above the G7 $60/bbl price ceiling. Although the discount for Russian crude has continued to narrow in recent months as Russia has sourced more non-G7 transportation capacity to avoid the G7 price cap, the value of global medium to high sulphur crudes has continued to strengthen in terms of their exports.

On August 23, the discount for Urals crude destined for India's west coast narrowed to $5.65/bbl relative to forward Brent crude, the narrowest spread since January 18, when the spread began to be assessed at $19/bbl. Platts, which assessed FOB Primorsk in the Baltic Sea at $74.69/b on September 1, has more than halved its discount on spot Brent crude to around $15/b since the start of the year.

According to market watchers, Russian diesel exports were also sold above the G7 price cap in early August, a move that raised further questions about Russian oil export flows as they test Western efforts to limit Moscow's war revenues.

However, stricter enforcement of the price cap seems unlikely at this point, as supply shortages loom later this year and global crude prices approach yearly highs of $90 a barrel.

In an August 28 report, Standard & Poor's Global Commodity Insights analysts said, "The U.S. government wants to control fuel prices, thus allowing more supply on the market. The U.S. has little interest in taking risky action to reduce Russian oil flows."

Under the G7 price cap on Russian oil exports, since Feb. 1, G7 and EU tanker operators and insurers have been banned from servicing vessels carrying Russian oil products that trade at higher prices than crude oil, such as diesel, at more than $100 a barrel. The lower $45/barrel price cap covers Russian petroleum products, such as fuel oil, that are traded at prices below the price of crude oil.

It remains to be seen whether prices for Russian petroleum products above the G-7 price cap will hinder Russia's ability to procure enough non-Western tankers to maintain export flows. In the case of crude oil, most market observers believe that Russia has a growing fleet of non-G-7 insured shadow tankers sufficient to shift crude exports to alternative markets in Asia, the Middle East, and Turkey.

However, the decline in product exports in August was attributed to a reduction in Russia's domestic refining capacity due to scheduled plant maintenance.

According to S&P Global Commodity Insights, refinery downtime in the former Soviet Union region increased by 310,000 b/d to 1.06 million b/d in the week ended August 25, and is expected to remain at the same level in the last week of August. S&P Global previously reported that tightening diesel supplies in Russia last month forced the Russian Energy Ministry to prioritize domestic agriculture and consumption. Railroad transportation delays, firm domestic crude oil prices, and a strong net export recovery pushed up domestic diesel prices for Russia's main petroleum product exports.

Rail delays slowed the transportation of petroleum products from refineries to the ports of St. Petersburg and Novorossiysk. This was due to a shortage of railcars and engines as a result of the Ukrainian invasion, coupled with increased coal and grain flows and the allocation of more cars to transport aviation fuel to meet military and travel needs.

In August, Turkey and India consolidated their leading positions as Russia's largest importers of petroleum products, despite an overall decline in total product exports, the data showed. Turkey, India and the UAE together purchased 1.04 million b/d of Russian fuel in August, accounting for 46% of total product exports.