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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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