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Russian Oil Major To Cut 290,000 Bpd As Crude Falls Into Negative Territory

Lukoil, the second-largest oil producer in Russia, plans to slash its crude oil production by 18 percent, or by 290,000 bpd, as part of the new OPEC+ production cut deal, president and chief executive Vagit Alekperov told Russia’s news agency Interfax on Monday.

Lukoil plans to reduce its oil production by 18 percent, or by more than 40,000 tons per day – which is equal to more than 290,000 barrels per day – Alekperov told Interfax, adding that Lukoil and all other oil firms in Russia would fulfill the quotas as per Russia’s energy ministry orders.

Lukoil expects oil prices to rise to $30 a barrel after the new agreement takes force in May, according to Lukoil.

Early on Monday, Brent Crude was trading at around $27 barrel, while the U.S. benchmark price WTI Crude was tumbling by nearly 30 percent at $13 a barrel, due to Tuesday’s expiry of the prompt-month May contract and the shrinking storage amid unprecedented demand loss in the U.S.

According to Interfax, Russia’s share of the OPEC+ cuts would be 1.8 million bpd in May and June compared to April.

On the face of it, Russia agreed to much deeper cuts in the new deal than those it rejected in early March when Russia’s refusal to back a collective 1.5 million bpd OPEC+ cut led to the one-month spat and the oil price war between Saudi Arabia and Russia. In reality, cheating with quotas has been an art in Russia since the start of the OPEC+ alliance more than three years ago.  

In the new deal, which lacks clear mechanisms for compliance observance, Russia’s target for oil production is 8.5 million bpd in May and June, Vitaly Yermakov, and James Henderson of the Oxford Institute for Energy Studies wrote in a paper last week. However, it’s not clear if condensate is included, which changes Russia’s overall cut. Including condensate, Russia’s share of the cuts should be 2.8 million bpd, without condensate, the cut would be around 2 million bpd, according to the authors. 

By Tsvetana Paraskova for Oilprice.com

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