The Siberian Winter That’s Helping Russia Comply With OPEC Cuts

Russia cut 100,000 bpd of its crude oil production as early as in the first few days of the New Year, but it wasn’t the agreement between OPEC and non-OPEC producers that was Moscow’s biggest incentive to start cutting output beginning January 1, it was the unusually cold temperatures—cold even for Siberia.

At least part of the 100,000-bpd cut was the result of the freezing, as low as minus 76 degrees Fahrenheit, temperatures across Siberia, Reuters reports, quoting industry sources.

In the deal with OPEC to curtail global crude oil supply, non-OPEC Russia pledged to “gradually” cut production by 300,000 bpd in the first six months of this year. Kremlin spokesman Dmitry Peskov said yesterday that Russia had started to cut production in accordance with its agreement with OPEC.

Oil production in Western Siberia accounts for some two-thirds of all Russian production and extremely low temperatures stop all activity at oil rigs because metal becomes brittle, power supply is disrupted, car engines won’t start, and people cannot work outside.

Drilling of new wells also becomes impossible.

“Usually, all the working activity is stopped when it is minus 48 Celsius [minus 54.4 degrees Fahrenheit],” an oilman told Reuters by phone.

Related: UAE Oil Minister: Too Early To Say If OPEC Deal Should Be Extended

Admitting that extremely cold temperatures affect oil production and well drilling, Valery Nesterov, an analyst at Moscow-based Sberbank CIB, told Reuters that it was too early to judge if lowered Russian production was the result of its pledge to cut supply, or was the result of other factors.

“There will be a more deliberate decline in the second quarter when Russia will have to catch up with its cuts pledges,” Nesterov noted.

Russia and OPEC have not been great with compliance to cuts in past deals, and analysts do not expect full compliance this time either. In Russia’s case, it could be the seasonal production decline by around 150,000 bpd in the spring or scaling back from the planned increase in 2017 production that Moscow could claim as ‘cuts’.

By Tsvetana Paraskova for Oilprice.com

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