RUSSIA MONITOR

Date: 28 May 2019

Russia Hopes to Increase Oil Output

The oil output-cut agreement is set to expire by the end of June 2019, putting an end to six months of restriction in oil production imposed on OPEC+ countries. And it is possible that this will also halt the belt-tightening policy, making the oil-producing countries, with Saudi Arabia and Russia at the forefront, surge their overall oil output.

SOURCE: LUKOIL.COM

The next OPEC+ summit will be held in late June. OPEC and non-OPEC energy ministers will meet for talks in Vienna on June 25–26 to discuss the possibility of increasing oil output instead of reducing further production. Russia is the leading proponent of either partial or full withdrawal from the deal in force that stipulates that its domestic production drop to 1.2 million barrel per day from a baseline in October 2018. This came even though Russian exporters are increasingly gaining on OPEC+ restrictions; as reported, Urals crude exports rose to an almost two-year high in April this year as a result of a small amount of high- and mid-sulphur grades on the global market.

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Moscow’s official stance will not have been revealed until the OPEC+ summit. Even though Russia has stated that it is capable of boosting its oil output by 300,000 barrels per day. Like other Russian firms, the country’s largest oil producer Rosneft is in favor of a surge in oil output after the deal expires at the end of June 2019. Not incidentally, in its report summarising the first quarter of 2019, the state-owned oil giant informed that it “has significant potential to quickly boost oil production” if output restrictions are eventually loosened. And Russia does not seem particularly committed to fulfilling its obligations under the OPEC+ deal, being in no rush to implement further limitations on the pretext of weather conditions or geological challenges. In consequence, Moscow complies to the agreed output level right before the deal expires. As for now, Moscow has managed to achieve this goal in May, so one month before the six-month period was set to end.

Moscow’s even partial withdrawal from reducing its oil output is likely to happen if one takes into account the situation on the global market, which shows the feasibility of a decrease in oil supplies worldwide. This is to be owed to a set of different factors, including U.S. sanctions on Iranian oil exports, possible Gulf war, Venezuelan oil crisis following Washington’s limitations on the country’s PDVSA or escalation of the Libyan civil war. All these may mean a rapprochement in Russian and Saudi stances on a surge in oil output.

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