Russia Reduces Output Within OPEC Guidelines But Sends Mixed Signals About Agreeing to OPEC Cut Extension

Russia has reportedly reduced its oil production in accordance with the framework provided under the Organization of the Petroleum Exporting Countries' (OPEC) cutback initiative, but it still remains unclear whether it will agree to extend its cuts beyond the cartel's June expiry for the deal.

The uncertainty is troublesome for analysts, because just as Saudi Arabia is the de facto driver of the OPEC cutbacks, Russia is widely viewed as the leader of non-member participation, which members say is crucial if the cutbacks are to be extended.

Earlier this week, one of six OPEC delegates calling for an extension told Reuters, "An extension is needed to balance the market," but he added that "any extension of the cut agreement should be with non-OPEC" - meaning, Russia and other non-members need to remain part of the initiative.

Although Russia has come under fire for being slow to live up to its obligations under OPEC - and thus triggering speculation that it has no intention of living up to the deal, let alone curbing output beyond June - a source familiar with statistics on oil production in Russia told TASS that the former Soviet Union slashed oil production by 161,000 barrels per day as of March 19 against October 2016.

TASS reports that the average daily production in March was 1.51 million tonnes per day versus 1.532 million tonnes last October; almost all Russian oil producers reduced the average daily oil production in March 2017, except Rosneft (which boosted production by 10.6 percent to 582,000 tonnes) and Gazprom Neft (which increased oil production by 43 percent to 163,400 tonnes).

By comparison, Lukoil lowered production by 0.9 percent to 226,100 tonnes; Surgutneftegaz cut by 3 percent to 166,000 tonnes; Tatneft by 3.5 percent to 79,600 tonnes daily; and Russneft by 4 percent to 19,200 tonnes per day.

But the reductions don't necessarily translate into a willingness to participate beyond the original OPEC timelines, and Commerzbank on Tuesday said in a note that "We think it is very unlikely that Russia will actively take part in any extension of the production cuts that goes beyond paying lip service to the agreement."

The bank, which believes it is vital that the OPEC cuts last into the fourth quarter to achieve the cartel's goal of reducing  stockpiles in industrialized nations to their five-year average, added it would be premature for investors to "pin their hopes" on an extension.

But if Russian spokespeople are to be believed, anything is possible in the near future: Vladimir Voronkov, Russia's envoy to OPEC, stated on Tuesday, "None of the options, including the agreements' extension by another six months, should be ruled out."

He added that the decision would depend largely on whether Saudi Arabia will go along with an extension - and the Saudis in turn have stated that any extension will be determined by the extent of other countries' compliance with the existing deal.

Oil executives within Russia seem to believe the OPEC initiative has run its course with one executive telling the Financial Times, "There is a growing understanding that the fruits of the [OPEC] agreement have already been reaped."

Last week, Rosneft complained that "U.S. shale oil output has become and will remain a new global oil price regulator for the foreseeable future" and that while the long-term global oil demand dynamics and reduced investment during the period of ultra low prices will balance the market, "the risk of a price war resuming remains."