Russia should reduce its oil production by 20 to 30 percent to around 7 million bpd - 8 million bpd in order to get better prices and not have to agree to hefty discounts, Leonid Fedun, vice-president and co-founder of Russia's Lukoil, wrote in an article published in Russian outlet RBC on Monday.
Russian oil production has been falling since Russia's invasion of Ukraine. Crude producers are struggling to place all their oil on the market-especially the European one-and domestic refinery throughput is also slumping amid lower demand.
In the opinion piece in RBC, Lukoil's Fedun suggests that Russia should cut its production to around 8 million bpd as it would get higher prices for fewer barrels.
"Why should Russia maintain oil production of 10 million bpd if we can effectively consume and export 7 million-8 million bpd without losses to the state budget or domestic consumption," Fedun wrote.
"Let's remember the discussion that was taking place before the OPEC+ agreement. Which one is better-sell 10 barrels of crude oil at $50 a barrel, or seven barrels of oil, at $80 per barrel?" Lukoil's executive says.
"Do we need to keep export volumes from before the crisis, agreeing to 30-percent and at times, 40-percent, discounts," Fedun adds.
Analysts reckon that Russia's oil production could lose 3 million barrels per day (bpd) in the second half of 2022, and its production is set to be impacted for years by the sanctions its largest market-Europe-is imposing.
In its latest Oil Market Report this month, the International Energy Agency (IEA) estimated that Russia already shut in nearly 1 million bpd in April.
So far, Russian exports have held up. But as of May 15, the major international trading houses had to halt all transactions with state-controlled Rosneft, Gazprom Neft, and Transneft, the agency noted.
"Following a supply decline of nearly 1 mb/d in April, losses could expand to around 3 mb/d during the second half of the year," the IEA said, referring to Russia's oil supply.
By Tsvetana Paraskova for Oilprice.com
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Comments
Russia currently exports 8.0 million barrels a day (mbd) of crude oil and refined products and consumes 3.24 mbd out of a production of 11.24 mbd.
Cutting its production by 20%-30% to 8.0-9.0 mbd and deducting a consumption of 3.24 mbd will reduce its exports to 4.76-5.76 mbd at a time of skyrocketing oil prices thus affecting its revenue.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London