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Breaking News:

OPEC Lifts Production in February

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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Is Russia Really Cutting Oil Production?

  • Earlier this year, Russia pledged to reduce its oil production by half a million barrels per day, a pledge that some observers are skeptical about.
  • Since making its production cut pledge, Russian oil exports have remained strong but the number of idled oil wells in the country has risen.
  • Observers may have to wait until the end of refinery maintenance season in Russia to be able to gauge exactly how much oil Russia is producing.

Earlier this year, Russia said it would reduce its oil production rate by half a million barrels daily in response to Western sanctions and as part of OPEC+ efforts to prop up international oil prices.

Yet export data is creating confusion: based on that data, Russia is producing as much oil as before. At the same time, the number of idled wells in the country has gone up, Bloomberg reported this week. And Russia has stopped reporting official production figures. The situation has all the markings of a good mystery.

A mystery is the one thing this isn’t. According to Bloomberg, the number of idled oil wells in Russia rose to 18.1% of the total in March. This, according to the report, suggests that Russian producers are indeed cutting production.

What seems to be tripping some observers is the fact that while production is declining—at least in terms of the number of wells—exports remain strong. In fact, they even returned to levels before the invasion of Ukraine.

It appears that there is no space for suggesting that Russia can produce less but export more, perhaps because there is uncertainty about its local demand and storage capacity to do so. Whether this is the case or not remains unclear because of the limited availability of production information.

Still, Bloomberg notes, Russian refineries—and there are a lot of these—are currently in maintenance season, which means lower domestic demand for crude, which could provide a possible explanation for the seemingly conflicting information from export data and official idled wells figures.

In its report, Bloomberg also notes that the portion of oil wells idled carries limited information because it does not tell us anything about changes in the productivity of the ones that remain pumping.

But then, there was an argument being made in Western news outlets that Russia would be forced to curtail production because it cannot handle the technology of oil production without Western experts on call. Given the history of oil production in Russia, not everyone with knowledge in the energy industry field supported this argument, but it made the rounds repeatedly.

Some have suggested Russia is hiding the worst: the author of this GIS Reports article argues that Russia is suffering more damage to its oil industry than officially disclosed and is simply not talking about it.

As evidence, Carole Nakhle, CEO of energy advisory Crystol Energy, points to the sharp drop in oil revenues during the first quarter: it declined by as much as 40% from last year.

According to a Ukrainian research institute, the decline was lower, at about a third of revenues. What’s more, per an FT report citing the institute, not all of the decline was a result of Western sanction action. Most of it was, according to the Kyiv School of Economics, but some 25% of the revenue decline was attributed to lower international prices.

Yet at the same time, Bloomberg reported this week that oil revenues are rebounding, and Russia is planning to restart the purchase of foreign currency for its sovereign wealth fund, which it uses as a cushion during times of hardship. In other words, the decline is reversing, and Russia could soon stop dipping into the fund to manage its economy.

With such diverse data coming from outside Russia, it is indeed difficult to estimate whether or not one of the world’s biggest oil producers has reduced production by the promised half a million barrels daily.

If exports are any indication, it hasn’t. But it is idling more wells—the most since 2020, in fact, as Bloomberg notes in its report from this week. And this might mean lower production—unless well productivity elsewhere has increased sharply and suddenly.

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The chances of that happening in the described manner don’t seem great. It might be advisable for those curious about how much oil Russia is producing to wait for the end of the refinery maintenance season and see if export patterns change.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on May 05 2023 said:
    It is a fact that Russia has managed in general to maintain its level of exports of crude oil and petroleum products at pre-Ukraine level of 8.0 million barrels a day (mbd). It also managed to break records in both January and March this year when it exported 8.2 mbd and 8.1 mbd respectively

    Against this background, questions are being raised about how could Russia maintain such a high level of exports while producing less.

    There are logical explanations for this riddle if Western media is prepared to listen.

    1- Russia could be drawing oil from storage to maintain its level of exports exactly as Saudi Arabia does all the time.

    2- Russia could have raised its overall production to 11.5 mbd this year as Russian Deputy Prime Minister Alexander Novak promised. This could enable it to effect a production cut of 500,000 barrels a day (b/d) without affecting its level of exports.

    3- Alternatively the productivity of some of its prolific wells has gone up to offset the effect of idled wells.

    4- Because of its need for more revenues to finance the Ukraine conflict, it could have raised prices of gasoline, diesel and heating oil thus causing a reduction in domestic consumption.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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