Russia Further Aligns with OPEC to Control Crude Production, says GlobalData

“Solidifying of the Russian-OPEC relationship at Friday’s 174th Meeting of the OPEC Conference in Vienna was a desired outcome for Russia, even if production increase commitments were smaller than advocated by the country’s representatives,” says Anna Belova, Senior Analyst for Oil & Gas at GlobalData, a leading data and analytics company.

The decision by OPEC to increase production only to levels that matched previously agreed-upon cuts cleverly preserved the unity of the organization. In November 2016, OPEC agreed to cut production by 1.2 million barrels of crude per day. However, unforeseen supply disruptions in Venezuela and sanctions on Iran led to over-compliance to cuts, removing over 1.8 million barrels from daily supply, even as price rebounded. Friday’s agreement provides an opportunity for some members with spare capacity to increase production, while preserving original production cut commitments.

Russia, which collaborated with the OPEC’s supply cut pact and reduced its production by 300,000 barrels per day, was promoting significant  production increases upward of 1.5 million barrels per day to be split between OPEC members and non-members, collectively known as OPEC+.

Belova continues: “With multiple large projects slated for first oil in late 2018, Russian companies are eager for production limits to be lifted. Furthermore, the three main producers, Rosenft, Lukoil, and Gazprom Neft, have highlighted their existing spare capacity, able to add over 200,000 barrels per day.

“While details on how much the country will be able to increase production based on today’s agreements are limited, Russia succeeded in establishing the long-term viability of the OPEC+ pact. The country’s demonstrated ability to regulate its crude production makes it a key partner to Saudi Arabia in responding to global over-supply conditions.”