Russia’s Energy Minister Alexander Novak said that all Russian oil companies are on board with the 300,000-bpd cut agreed by Moscow as part of OPEC’s efforts to prop up oil prices through a production cut.
Novak went on to say that they would participate voluntarily in the cut, which is not particularly significant, given that save Lukoil, all big energy companies in the country are majority-owned by the state.
Given the size of the cut, this voluntary participation makes all the more sense. In October, Russia reported average daily production of 11.2 million barrels. The 300,000 bpd agreed by Novak and the oil industry, therefore, would constitute a 2.68-percent, which is not a whole lot, and that’s only if the cut refers to October production levels. As Reuters noted, Novak did not specify which monthly production level Russia will take as basis for the cut. This gives Russia’s Big Oil another month to boost production.
Last month, Rosneft’s CEO Igor Sechin said that Russia could up production by 4 million bpd in 2017, which at the time was taken as a suggestion that Russia could withstand the current oil prices even without a cut. Now, given the size of the reduction agreed by Novak, one can’t help but wonder if that may well be the case.
What’s also a possibility is that the 300,000 barrel per day “cut” could be off planned 2017 levels, because they were planning on ramping up. So the 300,000 barrel per day “cut” could be a freeze based on current levels, and only a cut when referencing planned 2017 production.
What’s more, Novak noted that the cut will be implemented gradually, over the six months that OPEC’s agreement will be in effect. The reason that the minister gave for the gradual nature of the action to be taken is that a sharp cut would constitute a technological challenge for oilfield operators in Russia. Challenge or not, the effect of Russia’s participation in the international effort to rebalance oil markets is unlikely to be felt in any palpable way.
Novak also told media that other non-OPEC producers, including Azerbaijan, Kazakhstan, Mexico, Oman, and Bahrain, among others, were also ready to join in the cut, possibly dividing among themselves the remainder of the 600,000-bpd reduction in output that OPEC asked for from non-members.
By Irina Slav for Oilprice.com
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