- Record output in January coincided with multi-year low for Urals oil
- Production freeze agreed with Opec would give Russia leeway to invest
- Russian central bank pegs domestic demand above consensus estimates
Facilities at the Yuzhno-Russkoye oil field in western Siberia. Photo: Gazprom
By Nadia Kazakova
In hindsight, it looks like a curiosity. Russian oil output (crude oil and gas condensate) peaked at around 10.9 million barrels/day in Q1 2016 exactly at the time when the oil price bottomed out (Urals averaged just under $32/barrel). Actually, the post-Soviet record output in January coincided with Urals oil at a multi-year low of $28.75/b.
It may be more by accident than design. Russia might have been pumping out at record levels in Q1 in preparation for a production freeze agreement, which never materialised. (But it does show that Russia was at least half serious about it). There is also a matter of a few new oil fields coming on line at the wrong time, and the inability of Russian oil producers to cut back on marginal fields (the infrastructure is too rigid, the cost of re-starting marginal fields is too high).
Over the last couple of months, oil output has come off the boil and stabilised at just over 10.8 million b/d. In May, crude oil and gas condensate production was up 1.14% y/y, but down 0.13% m/m to 10.82 million b/d.
If Russia is to hit its official output targets for the year of 540-544 million tons then output should stay within 10.76-10.90 million b/d for the rest of the year.
While Russian officials continue to make appropriate noises
on a coordinated output freeze with Opec, the actual level of output is likely to remain at around current levels until year end regardless of price. If there is an output freeze by Opec and, as a result, a stable $50-60/b level for the oil price, it could help Russia to invest a bit more and maintain stable production levels for another couple of years.
Table. Russian oil output and exports, million b/d
Source: www.interfax.ru, www.tass.ru
Oil exports (including Belarus and other CIS countries) were down by a noticeable 273,000 b/d in May compared to April, but they still run 6.9% higher y/y at 5.15 million barrels. There was a monthly increase in deliveries to Russian refineries, but they were still much lower than last year, down 6.1% y/y to 5.45m b/d.
On a side note, the Russian central bank in its recent report on economic trends calculated that the country's domestic oil consumption has been climbing up. Despite a drop in refining volumes, the implied domestic oil product demand (refining output less net exports) was up 5% since hitting lows in December 2015 and up 0.6% m/m in March (based on 12-month rolling average).
According to the bank, this is above market consensus and could lead to higher (than expected) global oil demand. The central bank estimates the domestic oil products demand (12-month rolling) was just above 5.4 million b/d in March 2016. If it is a trend, the oil market should take note.
At a company level, there is little change in terms of winners and losers in terms of oil output. Novatek, Bashneft and GazpromNeft are leading with output gains, while Lukoil and Rosneft continue to show declines on last year.
Table. Russian oil output by company in May 2016, million b/d
Source: www.tass.ru, companies' data, author's estimates. Note: * = as reported by media, not fully consolidated.
The good news is that Rosneft output seems to have stopped falling on a monthly basis at just over 4 million b/d and this should help to anchor Russia's overall crude output at the current levels.
– Edited by Clare MacCarthy
Nadia Kazakova is a specialist on Russia, particularly the oil and gas sector