Portal partners
Russia is in no hurry to reduce oil extraction
Author:Mariusz Dasiewicz
Moscow is trying to make the most of its status in OPEC+ format to earn as much as possible on oil sales. While other countries quickly reduce mining to raise global raw material prices, Russian companies take their time – earning at the expense of partners. Not everyone likes it – as the Minister of Energy of Saudi Arabia, Russia's main partner in OPEC+, says.
Russia reduces oil production as set out in OPEC+. But he does it very slowly. By the end of January, it is only expected to achieve one fifth of the maximum reduction in production. Energy Minister Aleksandr Nowak reported that daily extraction fell by more than 30,000 barrels a day compared to the level of October 2018. By the end of January, oil companies in Russia promised to cut production by 50,000 barrels a day. Russia promised OPEC+ partners that it would reduce production by 228 000 barrels a day by the end of the first quarter of 2019. The starting level is just October 2018, when the Russians extracted 11,418,000 barrels a day. By the time they began to reduce their extraction from the beginning of this year, they still had a post-Soviet record in December: 11,450,000 barrels a day. Russia's slow rate of reducing production does not like its main partners in OPEC+. Saudi Minister of Energy Khalid al-Falih stated that Moscow was running too slow.
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In accordance with the OPEC+ agreement, Russia was allowed to reduce production gradually – explaining this with harsh climate and complicated Siberian geology, which are intended to prevent rapid reduction of production. In contrast, Saudi Arabia has announced that it has already implemented its obligations to reduce mining. And so Russian reduction commitments are mild compared to the cuts of some partners. In December – even before the restriction agreement began to apply – production in OPEC countries fell by 530 000 barrels a day. By the end of June, OPEC+ undertook to reduce production by a total of 1.2 million barrels per day. Although the reduction in production by OPEC+ countries has helped raise Brent's barrel price of over $60, this is about 30% less than the four-year record that fell in early October 2018.
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Russia began working with Saudi Arabia to stabilise oil prices in late 2016. Moscow often signals that the price of $60 per barrel satisfies it. On January 18, OPEC published a list of countries that agreed in OPEC+ format to reduce oil extraction – together with information which country will reduce production. It follows that 21 countries (11 out of OPEC, 10 out of OPEC) will reduce their production in the first half of 2019 by 1,195 million barrels per day, keeping total production at 43.874 million barrels per day. OPEC will aggregate 812 000 barrels to 25,937 million barrels per day, and non-OPEC countries to 383 000 barrels to 17,937 million barrels per day. The biggest decrease in production was the leader of OPEC – Saudi Arabia committed to reduce its extraction by 322,000 barrels (from 10,633 million in October 2018 to 10,311 million at the end of June 2019). Russia took on the lion's share of the reduction in a group of countries outside OPEC: a reduction of 230 000 barrels, from 11.421 million to 11, 191 million. Iran, Venezuela and Libya gained an exception in OPEC. OPEC partners in this format are Russia, Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Sudan, South Sudan. The next meeting of the Joint Ministerial Monitoring Committee, which oversees the implementation of the cuts, will be held on 18 March in the capital of Azerbaijan, Baku.
Source: Warsaw Institute (text), Lukoil (picture).
