Russian Oil Production Stoops to a Low Market Value

Russian Oil production stoops to a low market value

Russia’s oil production dropped before a crucial meeting with OPEC this week to decide on the supply strategy, as prices are falling. Russia produced 11.369 million barrels per day of crude oil and condensate last month, down 0.42 percent from October, according to preliminary data from the Russian Ministry of Energy’s CDU-TEK unit. This is the first monthly decline in oil production in the country since the beginning of the year.

While Brent crude oil has plunged more than 30% since early October, Russia and Saudi Arabia came to an agreement recently, to coordinate their actions on the oil market next year, extending what is called the “OPEC+” agreement. The decision opens the door to an agreement at the meeting that Russia and the Organization of the Petroleum Exporting Countries (OPEC), are holding in Vienna soon, but its details, including the size of any potential reduction in production, are still not clear. The fact that Russia has been pumping oil at lower levels does not necessarily mean that its producers return to production cuts before the Vienna meeting has taken a decision. According to analysts, the seasonality and the factors specific to each field can be held responsible. According to the Director for Russia at IHS Markit Inc, Maksim Nechaev, this did not seem to be an intentional reduction and that under current market conditions, companies are looking only to pump as much as oil as they wish, in order to support their sales. According to recent reports, Gazprom Neft PJSC, the oil arm of gas giant Gazprom PJSC, and Lukoil PJSC, Russia’s second-largest oil producer, caused production to drop last month. Gazprom Neft reduced its production by 4.71% compared to October, while that of Lukoil reached 0.91%.

Rosneft Fares Well

Rosneft PJSC, Russia’s largest oil company, pumped a little more than in October into its main projects, excluding joint ventures and the Bashneft unit. The virgin lands of Rosneft in eastern Siberia and Samotlor in the Soviet era were the main sources of growth in the company’s production. Russia is offering tax breaks for these fields, which could give Rosneft an additional incentive to increase production. Russia wants to keep its oil production close to average levels from October until the end of the year, Energy Minister Alexander Novak said in a statement recently. This may imply that a slight growth in production is possible this month, even amidst the recent collapse of Brent. Russian crude oil producers are resisting current price declines, the Ruble’s flexible exchange rate and the tax system providing natural hedging at their costs.

Saudi Arabia and The United States Influencing Decisions

If Saudi Arabia, Russia, and other OPEC+ countries promise to impose significant production cuts to stabilize crude oil markets at their December 6 scheduled meeting, the American shale industry will continue to improve, recover and reduce costs over time. If OPEC+ actually applies substantial reductions in production – Saudi Arabia has publicly stated that it could reduce its own production by 500,000 billion barrels a day, which would reduce the price of West Texas Intermediate to a range of up to $ 60 / bbl. The US industry will increase production by 2 million barrels or more over the next 12 months.

When OPEC + countries concluded their export restraint agreement for the first time in December 2016, crude oil production in the United States amounted to about 8.7 million barrels. The increase in US production of about 2.8 million barrels in the last two years has almost offset the rise in global demand, and the United States, before the huge increase in Saudi production in November ranked first in the world of crude oil producing countries, will once again be held if the Kingdom follows up on its promised reductions. Both Saudi Arabia and the United States could shape the way Russia produces oil in the future

About Anand Sai 84 Articles
Anand Sai has worked in the field of market research as an analyst and a consultant and has also operated at several leadership positions. He has an enormous experience with respect to the compilation of high-quality market research reports and boasts over six years of experience in end-to-end project management. Anand is a dependable voice in the market research field and has been named in some of the top industry publications. He is also a travel junkie and loves to explore new places with his friends.