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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Oil Slides As Russia Plans To Raise Production

Reports that Russia plans to start easing oil production cuts after the end of June arrested the oil price rally, keeping WTI below $35 a barrel.

WTI slid 0.3 percent following the news, after gaining more than 3 percent yesterday. This added to worry about U.S.-Chinese relations after the U.S. threatened to impose sanctions on China for its policy towards Hong Kong.

The Bloomberg report, which cites unnamed sources familiar with Moscow’s position on the cuts, stands in stark contrast with a Reuters report, which also cited unnamed people familiar with the Russian position, who said Moscow was in fact considering an extension of the current cuts.

Russia is meeting with its OPEC+ partners next month to discuss future steps, with Energy Minister Alexander Novak saying that he expected the oil market to rebalance by July. The remark suggests Russia might indeed be ready to ease the cuts, which have capped its production at 8.5 million bpd. On the other hand, there are way too many questions around the rate of demand improvement for comfort, so extending the production cuts is certainly on the table.

According to reports from last week, Russia is almost complying with its share of the cuts, with its crude oil production averaging 8.72 million bpd in the first three weeks of May, as per Reuters estimates. This is close to the 8.5-million-bpd quota, especially considering Russia’s far-from-perfect track record in complying with the cuts.

In a separate positive sign for oil markets, Bloomberg noted that Nigeria and Algeria had increased their official selling oil prices, indicating they expected improved demand soon.

Meanwhile, demand is recovering in two key markets: China and India. India’s Energy Minister Dharmendra Pradhan said demand for oil would rebound to pre-crisis levels next month while in China, IHS Markit said it expected May demand to reach 92 percent of pre-crisis levels.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on May 27 2020 said:
    It is no secret that Russian oil companies have never been keen on OPEC+ production cuts. But the decision maker of Russia’s oil policies is President Putin himself. He has always to look at the whole picture beyond the narrow view of oil prices.

    On balance, President Putin will decide to stick with OPEC+ production cuts until the market has rebalanced probably by July according to his own Energy Minister Alexander Novak.

    Three factors might, however, influence his decision on cuts. The first is the size of the glut in the global oil market. A fast decline in the glut could tip the balance in favour of reducing the size of the cuts. The second factor is how long would it take for US shale oil production to recover having lost 4 million barrels a day (mbd) in May. The third factor is the level of prices.

    While Russia’s economy can live with an oil price lower than $40 a barrel, Saudi Arabia and the majority of OPEC members need prices between $85 and $100.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Maxander on May 27 2020 said:
    Forget Russia raising production. I think Rissia will further cut production ahead & keep it same for several years ahead to keep the oil thirst & tightness alive. OPEC may follow the same.
  • Bert Ansink on May 27 2020 said:
    Today's drop has nothing to do with rumors in the oil market.

    Stock prices are dropping and algorithmic traders (HFT) are pushing oil prices down on the front month along with it. It's simple correlation based trading. Compare the graphs of WTI with for example the S&P500 and it's very clear. Also the further dated contracts are barely responding.

    You can see that major fuel consumers, airlines shipping etc are gaining. So really oil should follow up instead.
  • Maxander on May 27 2020 said:
    & one fact one can not forget that Russia has left with recoverable Crude Oil reserves that may not last beyond 2030-2032 at current 8.5-9 mn bpd as Russia is not very big oil rich nation.
    So, for Russia to keep producing oil till 2040, Russia's oil production must come down to 6-7 mn bpd.

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