Putin's army is guzzling gas and Russians are stuck vacationing at home — boosting the country's oil production to a 5-month high

Vladimir Putin's Russia is still pumping plenty of oil, despite Western sanctions.

OZAN KOSE/Getty Images

• Russian oil production has hit its highest level since February as the army guzzles gas and people holiday at home, according to data company Kpler.
• The boom in domestic demand has seen exports to Asia tumble by 40% from their wartime peak, data shows.
• "Russians can barely fly anywhere, so basically they're traveling all around the country," Kpler analyst Viktor Katona told Insider.

A gas-guzzling army and a boom in summer driving is ramping up domestic demand for oil in Russia and leading to a sharp drop in exports to Asia, according to energy consultancy Kpler.

Russian oil production stood at around 10.8 million barrels per day in July, data shared with Insider by Kpler showed — the highest level since Russia invaded Ukraine in late February.

Production initially dropped from 11 million barrels a day in February to 10 million in April as the war and resulting sanctions rocked Russia's economy. However, India and China quickly stepped up their purchases of the country's crude, which has been trading at a discount on international markets.

An impending European Union ban on Russian oil imports is likely to cause its output to fall by more than 1 million barrels per day before the end of 2022, analysts say.

Right now, though, a rebound in domestic demand has helped Russian production climb for the third month running.

Many Russian airlines have been banned from flying over Europe, severely limiting foreign vacations for the sanctioned country's residents. That's led to a boom in trips at home, which has caused demand for motor and jet fuel to soar, according to Kpler analyst Viktor Katona.

"There's just insanely strong domestic demand," Katona told Insider. "Russians can barely fly anywhere, so basically they're traveling all around the country."

Katona said the Russian war machine — now into its fifth month of a brutal war in Ukraine — is also pushing domestic consumption higher.

"Every single tank, every single airplane — you name it, all the military equipment is running on diesel, effectively," Katona said.

A May report by S&P Global Commodities Insights estimated the invasion might be consuming almost 6% of the diesel coming out of Russian refineries.

Kpler said the jump in local demand has led to a sharp fall in exports, particularly to Asia. State subsidies are also encouraging energy companies to keep their oil in the country, Katona said.

 

Russia's crude oil exports to Asia peaked at 2.2 million barrels per day in April, but have dropped roughly 36% to around 1.4 million barrels in July, according to Kpler data.

India's imports of Russian crude peaked at 950,000 barrels a day in April, but have fallen to about 660,000 this month. China's hit 1.2 million barrels per day in May, but have since fallen to around 740,000.

Signs that the global economy is slowing have driven oil prices lower in recent weeks, as traders anticipate a fall-off in demand. China's overall crude imports have already dropped as its economy struggles under a strict zero-COVID policy.

Yet Katona said Russia should have little problem in ramping up exports to Asia again, once the holiday season ends. Russia's oil is going cheap — and that makes it appealing to countries dealing with rising prices, such as India.

"It's a no-brainer," Katona said. "If you have massive inflation, the best you can do is to decrease your cost of energy."

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