Article / 12 October 2016 at 10:30 GMT

How the Russia/Opec deal will likely look

Russia oil and gas expert
United Kingdom
  • Russia to cap output at 11 million b/d
  • Country's production surging of late
  • Baseline output forecasts key for deal, budget

Moscow will sign the Opec production cut deal November 30, 
but the details are likely already known. Photo: iStock

By Nadia Kazakova

Here is how the Opec/Russia deal will look when it is signed on November 30. After weeks of speculation, a few headlines and many sound bites from various officials (creating a trading opportunity or two), Russia will announce that it will cap its daily output at 11 million barrels of oil (equivalent)/day for 12 months starting in January 2017. 

Russia's willingness to cut back might prod more reluctant oil producing countries to chip in or at least commit not to ramp up output too quickly throughout 2017.

The markets should get all very excited as it would look as an output cut of 200,000 barrels or so from September-October production levels. 

The reality is that Russia's sustainable oil and gas liquids production levels are probably at around 11m boe/d or slightly lower. The remarkable surge in daily output seen in September and so far in October can only partially be explained by the launch of a new field in Siberia and resumption of the Sakhalin-1 oil production after three weeks of maintenance in August.

So far in October, Russian daily oil output has averaged 11.20m boe/d, higher than the officially reported 11.11 million boe/d of output in September. 

It is interesting (and somewhat unusual) that every single Russian oil major has shown a monthly rise in oil and gas liquids output in September and it seems that they did not quite stop there and are on their way to achieving a new bumper month in October. 

Russian daily oil and gas liquids output in October and monthly output in 2016, million boe/d:
Sources:,,, author's estimates

A cut back to 11m boe/d would probably mean little in terms of actual market balances, both in Russia and outside, if the recent rise in Russian output is a combination of pumping above sustainable levels and some clever reporting.

The 11m boe/d level has been taken as a base for the budget calculations for the remainder of 2016, as well as for 2017-2019. 

The economic ministry is penciling in 548-553m tonnes of oil output in 2017-19, slightly above this year's expected production of 545m tonnes. Granted, the expected output is usually a conservative estimate and actual numbers tend to be better (in good years). 

However, if Russia does join the Opec cut programme with the headline level of 11m boe/d, it would save Moscow the pain of revising Russian output (and the bureaucratic nightmare of recalculating and approving the new budget numbers).

Budget forecast for Russian oil and gas liquids output, million tonnes and million boe/d:

As talks and negotiations continue behind closed doors throughout October and November, one should not be too distracted by the comments of various Russian officials and company bosses. A political decision has been taken by president Vladimir Putin (which was announced in early September). 

It also feels increasingly likely that the Russian production cap might have also been agreed upon back in late August-early September (Putin is known for his attention to detail). The rest is noise. 

Thus, the most recent comments from Rosneft CEO Igor Sechin about his scepticism towards the production cuts should be taken with a fair helping of salt

“Why should we do it?” he asked Reuters on October 11.

Well, I guess because you have been told to. 

— Edited by Michael McKenna

Nadia Kazakova is a specialist on Russia, particularly the oil and gas sector  
yuiyui yuiyui
I'm curious if there isn't political dynamic as well directly between Russia and Saudi that could have changed with the change of the guard in Saudi
Karen Holander Karen Holander
This comment has been redacted


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