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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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Why Russia Fails To Comply With The OPEC+ Cuts

Russia’s crude oil production to date is 140,000 bpd lower than the average daily rate for October 2018, Energy Minister Alexander Novak said as quoted by TASS. The October 2018 average was taken as a basis for the cuts agreed by OPEC and its partners in December.

Yet 140,000 bpd is less than what Russia said it would cut in December, which was over 200,000 bpd. However, Novak warned from the start that the production cuts would be gradual, citing winter conditions that made it harder to reduce production. Russia’s portion is more than 50 percent of the total non-OPEC cut, which stands at 400,000 bpd. The cartel itself is cutting 800,000 bpd.

MarketWatch reported on Sunday the partners in the production cut deal are still split on the question of whether the cuts need to be extended into the second half of the year, which is what Saudi Arabia has indicated it wants. Russia, though, has been reluctant to cut from the start and it is unlikely it will embrace the idea of longer cuts as they do not translate into direct benefits for it.

Earlier, Novak said Russia will achieve full compliance with the OPEC+ cuts by April, which is when the partners will meet to review their progress.

“As far as the meeting is concerned we, of course, discussed the situation with the execution of the agreement (and) we stressed once again that Russia is discharging its obligations in accordance with the agreement to smoothly achieve the target output," Novak told CNBC.

"As for the target output level that forms part of the signed agreement, we plan to reach those figures by the end of March (or) beginning of April. This is earlier than in the same period two years ago by about one month," Novak also said.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on March 18 2019 said:
    There are three reasons why Russia appears to be dragging its feet regarding the implementation of the OPEC+ cuts.

    The first reason is that Russian oil companies were against the cuts from the start but were forced to abide by them by President Putin. They have invested heavily in the Russian Arctic to raise Russia’s oil production and wan, therefore, a quick return on their investments.

    The second reason is that the bulk of oil production in Russia is done by private Russian companies in which the State has some stake. Unlike other OPEC members where oil production is done by State-owned national oil companies where the decision-maker is the government, Russian oil companies have many decision-makers and, therefore, they can’t cut production promptly and concurrently. Furthermore, severe weather conditions in Russia could hinder a fast cut in production.

    A third reason is the level of prices that Russia and Saudi Arabia want to achieve. Saudi Arabia has been determined to cut its production and exports steeply beyond its share of the OPEC cuts to ensure that the global oil market becomes irrevocably balanced and oil prices rise above $80 a barrel which is the price Saudi Arabia needs to balance its budget. Russia’s economy, on the other hand, can live with an oi price of $40 or even less, hence the difference in urgency between Saudi Arabia and Russia.

    Still Russia and President Putin are fully committed to the OPEC+ cuts but they need to expedite the cuts to convince OPEC members of their commitment to the cuts.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Tripp Mills on March 19 2019 said:
    I happened to catch the interview with the Russian Energy Minister - he and Russia are part of OPEC + and need to understand there was a comment made on the "oil market continuing to be over supplied" - I personally don't understand the message that came across (my opinion and I did not catch it in detail) - that may not have been the interview I saw (there are so many which is good so hope everyone is doing their job of reporting accurately, commenting accurately, representing their Saudi/OPEC peers, etc. Just like the U.S., Russia does not have endless supplies of oil and there is always a comment about $60 which I personally do not get (is Russia shorting or something). I was going to email the Energy Minister just to get clarity however i'm sure it will be worked out over the coming days/weeks and a consistent message will be communicated - OPEC/OPEC + has the job of balancing world oil markets (the oversupply is already here and hopefully not to stay - its not unlimited). All the best, Tripp
  • Tripp Mills on March 19 2019 said:
    P.S. Thank you to the authors and to oilprice.com for taking time and working so hard to keep a valid discussion going on who is doing what when and where - it is VERY helpful! And no one can blame OPEC/Saudi when prices rise or our U.S. companies like offshore, etc. b/c they have been punished for years, years!

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