Russia to cut oil output by about 10 percent in coming days as exports suffer - sources

LONDON (Reuters) - Russia is cutting oil output by as much as 10 percent for several days amid disruptions due to contamination of crude in a major pipeline to Europe and at a key port for exports, industry sources said on Friday.

FILE PHOTO: A general view of oil tanks in the Transneft – Kozmino Port near the far eastern town of Nakhodka, Russia November 15, 2017. REUTERS/Yuri Maltsev

Russian oil producers received a request from state-run pipeline monopoly Transneft to reduce oil output by 900,000 tonnes, or about 6.6 million barrels, until May 7, two industry sources told Reuters.

That represents more than 1 million barrels per day (bpd) over the next five days or about 10 percent of output from the world’s second largest crude exporter, according to Reuters calculations.

Transneft declined to comment.

“This just shows this disruption is extremely serious. Russia has had its major export pipeline and port either shut or not functioning properly in the last 10 days, so output cuts are unavoidable,” said a Russian oil buyer with an oil major.

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Russia halted oil flows in the Druzhba pipeline to Eastern Europe and Germany last week because of contaminated crude, contributing to a rise in global oil prices to a six-month high and leaving refiners in Europe scrambling to find supplies. Oil sent to the Baltic port of Ust-Luga was also tainted.

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Transneft has promised to resume normal flows of oil to Ust-Luga by May 7 but said it may take longer to resume normal operations along Druzhba.

Belarus has said it could take months to fix the pipeline issue, while refiners across Europe have been cutting runs and asking governments to allow them to use strategic oil reserves.

At least 5 million tonnes of oil, or about 36.7 million barrels, have been contaminated by organic chloride, a compound used to boost oil extraction but which must be removed before the oil is sent to clients as it can damage refining equipment.

Transneft said the contamination happened in the Volga region of Samara and blamed unnamed “fraudsters”. President Vladimir Putin said Transneft lacked a proper mechanism to prevent contamination.

Major Russian crude buyers have been pressing Transneft to give answers on how and when the problems would be fixed. But industry sources said communications with Western buyers and even producers at home had been limited so far.

From Ust-Luga, Russian oil firm Surgutneftegaz has been struggling to sell prompt May cargoes even after several rounds of tenders and despite offering discounts.

“No one understand what sort of discounts would cover your costs and hence no one is willing to touch the barrels,” said a second Russian oil buyer with a trading house.

Adding to Moscow’s problems, the usual spring cuts in refining runs at domestic plants have left more crude for export when Russia has fewer routes to send crude abroad.

“Transneft needs to restore clean flows to Ust-Luga by May 7 or problems will really worsen,” said a third major Russian oil buyer with a major.

Some 15 tankers with contaminated oil have already sailed from Ust-Luga to the West, which means most refiners have already run out of capacity to store unwanted oil to blend it with cleaner crude to dilute the tainted crude.

“Once everyone took a cargo of this stuff, everyone is effectively full. Russian crude quality needs to urgently go back to normal,” a fourth Russian oil buyer with a trading house said.

Reporting by Dmitry Zhdannikov, editing by Louise Heavens