Exclusive-Russian oil firms to reopen wells in June banking on demand rally, sources say

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FILE PHOTO: A flame burns from a tower at Vankorskoye oil field owned by Rosneft company north of the Russian Siberian city of Krasnoyarsk

(Reuters) – Russian oil companies led by Rosneft plan to re-open wells in June which they had shut due to Western sanctions, four sources said, as firms bank on a pick-up in seasonal demand and sustained Asian buying.

It was not immediately clear how big the increase could be nor how it might be affected by EU plans announced on Monday to slash Russian crude imports by up to 90% by year-end.

Between May 1 and 30, Russian oil production increased to 10.19 million barrels per day (bpd) from 10.05 million bpd in April, the Interfax news agency reported.

That, however, was nearly 1 million bpd below levels before the West imposed sanctions on Moscow.

Sources said Russian companies plan to ramp up output in hopes of a summer pick-up in domestic demand and as Russia increases sea-borne supply to buyers such as India and China.

“At first there were many concerns on how sales would proceed, but now the situation has settled a bit, and demand for Russian barrels has improved,” a source who sells Russian oil abroad told Reuters.

Companies have cut back production in central Russia while keeping output little changed in northern and Siberian fields further east where cold weather complicates restarting wells, sources have said.

Those set to restart from June 1 include Rosneft units in the Volga river region of Samara and in Orenburg on the border with Kazakhstan as well as fields operated by Bashneft which sit in between the two, an industry source familiar with the plans said.

A second source confirmed that Rosneft and a number of other smaller companies are ramping up production.

Rosneft and the energy ministry did not reply to Reuters requests for comment.

Deputy Prime Minister Alexander Novak said this month that oil production was to rise in June, but did not provide figures.

SHORT-LIVED INCREASE

A third source, a high-ranked oil executive, said summer demand was set to rise as Russians flock to their summer houses, or dachas, and as other holiday options are limited due to sanctions.

But he warned that the growth would be limited.

“A modest increase in production is temporary… This reflects a hope for a seasonal spike in demand and catching some luck selling some more volumes (ahead of the EU’s plan to halt most imports),” the oil executive said.

Overall, the companies are targeting average oil production this year of 480 million tonnes, or 9.64 million bpd, as per earlier Novak’s forecast, the executive said.

A fourth source at a major Russian oil producer said oil from other producers being diverted to Europe would create market opportunities for Russian sellers.

“They (Europeans) will be paying 5-7 euros for gasoline… And as they will need to take it from somewhere, we will ship (our oil) to where they will take it from,” the source said.

(Reporting by Reuters; editing by Jason Neely)

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