Ukraine has ramped up its use of long-range drones against Russian oil refineries, export terminals, and storage facilities in an effort to erode Moscow’s revenue streams and weaken its war financing ability, with the latest kamikaze drone attacks in August and September taking an estimated 300,000 barrels per day of refining capacity offline, according to a Goldman Sachs client report issued this week. 

A team of Goldman analysts led by Yulia Zhestkova Grigsby and others wrote in a note to clients:

The Brent oil price increased by $2/bbl from a week ago to $67/bbl as drone attacks on Russia refineries and export facilities ramped up. We estimate that drone attacks took out about 0.3mb/d of Russia refining capacity in August and in September so far.

Following increasing sanctions pressure on Russian oil buyers and lower refinery runs, Russia seaborne diesel exports dropped by nearly 1/2 over the last 6 months or by 0.5mb/d (Exhibit 1, right panel). But refinery outages can also weigh on upstream production via crude storage congestion from lower refinery intake, especially if crude storage and export capacities are limited.

Our Russia crude production nowcast has been trending down over the last 3 years and dropped to its lowest post-pandemic level of 8.8mb/d last week (Exhibit 1, left panel). While the uncertainty around secondary tariffs and additional sanctions remains high, we assume only modestly lower Russian production as Asian buyers continue to signal willingness to import Russian crude. We see more downside risks to Russia production from declining producer price incentives and technological and operational bottlenecks from sanctions than from lower foreign demand for Russian crude.

Brent crude markets are weighing geopolitics against softening macroeconomic data in the U.S. and elsewhere, alongside rising protectionism from the global trade war. Prices are consolidating around $67 a barrel as much of the war-risk premium has evaporated.

Last weekend, Ukraine launched a massive drone assault on Russian energy infrastructure, with Reuters reporting 361 drones, including at least one that struck the vast Kirishi oil refinery in northwest Russia. In a separate development, Russian drones were recently downed in NATO-member Poland. More coverage on the drone campaign is available here.

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