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Oil Production Cuts Taking A Toll On Russia’s Economy

Russia

The OPEC/non-OPEC production cuts hurt Russia’s economic growth in October, Economy Minister Maxim Oreshkin said on Thursday in the first negative comment about the pact from a high-ranking Russian official.  

“Because of the OPEC deal we have a negative direct impact from oil production, as well as indirect effects related to low investment activity due to production limits,” Oreshkin said, just a week before OPEC and its non-OPEC allies led by Russia meet to decide on the extension of the deal.

Just after the pact was extended for the first time in May, it was Oreshkin who said that the deal was working and that Russia was “ready to live forever at oil prices $40 or below.”

Back then the market was not convinced that the cuts were working, but now that Brent oil prices are above $60, Russia looks hesitant to lend its support to a nine-month extension of the deal through the end of 2018. With oil prices in the $60-65 range, there is growing talk and speculation that Russia might walk away from the deal, or try to stall either the taking and/or the announcement of the decision, because it doesn’t see such announcement as urgent as possibly many of OPEC’s producers.

In addition, Russian oil firms are said to be balking at a further extension, arguing that their production restrictions are only benefiting others while Russian companies have to cut back from new projects in which they have heavily invested. 

Related: Who's Next? Venezuela's Collapse Puts These Nations At Risk

At a meeting with Russian Energy Minister Alexander Novak last week, major Russian oil companies discussed a six-month extension after March 2018, and all but one company-- Gazprom Neft--said they were ready to extend, according to Russian media.

Novak is scheduled to meet representatives of the oil companies again and has said that Russia will decide later this month what its position at OPEC’s Vienna meeting on November 30 will be.

By Tsvetana Paraskova for Oilprice.com

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  • Citizen Oil on November 25 2017 said:
    If you want to see your oil based economy suffer, just go and cancel the extension. Even the discussion of 6 months instead of 9 months will disappoint the market. You'll have way fewer Rubles to count if you do that.The oil market is like dealing with greedy children who don't know math or common sense.
  • Lee James on November 23 2017 said:
    So many armaments to make; so little time.
  • Mike on November 23 2017 said:
    They cut production by 10% which has supported a 50% increase in price over the $40 that they are prepared to live with. How are they not money WAY ahead. Now they want to blow up the agreement and send prices back to $40 so they can increase production slightly. Are they really that bad at math? Doubtful.
  • Jack on November 23 2017 said:
    Russia and Venezuela have the same business plan.

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