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As if already preparing for its exit from the OPEC production cut deal that seeks to drawdown global inventories of crude oil to rebalance the market, Russian Energy Minister Alexander Novak vowed on Thursday to increase its oil output after June, according to Reuters.
Russia’s recent decline of production, according to Novak, was caused by a combination of refinery maintenance and contaminated oil flowing through the Druzhba pipeline—issues that will be resolved after June, coincidentally when the oil production cut deal is set to expire.
Alexander Dyukov, CEO of Gazprom Neft, said that the contamination issue had not affected oil output at all. “It hasn’t affected the company’s oil output at all. We simply sent the oil through other routes,” according to Reuters.
Novak had a different take on why its output had fallen below the level agreed to with OPEC, “Partly, this is due to the restoration of (oil) quality in the pipeline.”
Russia’s largest oil producer, Rosneft, is in talks with the government for possible compensation for losses should OPEC and its allies decide in June to extend the output cuts according to Sechin. Sechin has been critical of the deal that Russia forged with its OPEC counterpart.
It is no secret that when it comes to breakeven prices, Russia is positioned differently than OPEC’s de facto leader, Saudi Arabia, and as such, Russia doesn’t require as high of a breakeven in order to keep its budget. Russia has crafted its budget based on oil at $40 per barrel. Saudi Arabia, on the other hand, has a budget based on oil at $85 per barrel.
OPEC and Russia are set to meet to review the progress of the production cut deal and the state of the market on June 25-26.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.