Russia can raise its oil production by 200,000 bpd to 300,000 bpd in the short term, with a potential for up to a total increase of 500,000 bpd, Russian Energy Minister Alexander Novak told news channel Rossiya 24 on Tuesday.
The Russian companies will be reassessing their investment and production plans after they are no longer obliged to stick to the OPEC+ deal, Novak said.
Just before the OPEC+ meeting last week—which turned into a fiasco for OPEC’s leader Saudi Arabia after Russia refused to back additional massive production cuts—Russia’s average oil production had increased to 11.29 million bpd in February, up by 3.2 percent on the year and slightly up from 11.28 million bpd in January.
Russia’s oil production figures, however, include gas condensate, which, as of this year, is not included in the Russian production and quota as part of the OPEC+ production cut agreement.
The end of the OPEC+ deal will now allow Russian oil companies, which had not been happy with production restrictions, to boost output as soon as the current deal expires on April 1.
The largest Russian oil producer and most vocal critic of the OPEC+ agreement, Rosneft, already plans to increase its oil production, a source close to the company told Bloomberg on Monday.
According to the source, Rosneft could be able to increase its production by 300,000 bpd within two weeks.
After the OPEC+ break-up and after the price war that Saudi Arabia and Russia started, Rosneft slammed the deal in comments to Russian media, saying that it was only giving U.S. shale a bigger slice of the market.
The OPEC+ agreement was meaningless from Russia’s point of view, Rosneft’s spokesman Mikhail Leontyev told Russian outlet RBC on Sunday.
“By ceding ground in our markets, we removed cheaper Arab and Russian oil from the market only to clear the field for more expensive U.S. shale production and to help its production efficiency,” Leontyev said.
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By Tsvetana Paraskova for Oilprice.com
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And with Russian oil companies no longer obliged to stick to the OPEC+ deal, Russia, the world’s largest crude producer, aims to raise its production by 300,000-500,000 barrels a day (b/d). In a not too subtle way, Russia is challenging Saudi Arabia to flood the global oil market with oil or to start a price war with it.
Saudi Arabia is deluding itself by claiming that it could flood the global oil market with an extra 2.6 million barrels a day (mbd).
Saudi Arabia can’t raise its oil production to 12.3 million barrels a day (mbd) under any circumstances. Its claim of having a production capacity of 12.5 mbd is yet to be tested. Moreover, Saudi oil production is in decline having peaked at 9.65 mbd in 2005. Saudi Arabia can produce some 8.0-9.0 mbd with another 700,000 barrels a day (b/d) to 1.0 mbd coming from stored oil on tankers or underground.
Saudi Arabia would have learned nothing from the recent past if it is considering flooding the global market in the aftermath of OPEC+ failure to agree deeper production cuts. It will end up in a similar fiasco to the one in 2014 when it flooded the market in the aftermath of the oil price collapse and was forced to discard its discredited policy having inflicted huge and severe damage on its economy.
Moreover, Saudi Arabia could never win a price war with Russia. Russia’s economy can live with an oil price of $30-$40 a barrel for many years compared with $85 or higher for Saudi Arabia and the majority of OPEC members. Russia’s economy is one of the world’s most advanced economies and very diversified compared with the Saudi economy which is overwhelmingly depend on the oil revenue.
Russia and Saudi Arabia cooperating can achieve a lot in terms of stabilizing the oil price and influencing the global oil market. This is not dissimilar to the geopolitical and economic benefits Saudi Arabia could reap from a rapprochement with Iran.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London