Record-Pumping Russia Latest Nation to Report Cutback Compliance

by Ship & Bunker News Team
Tuesday January 10, 2017

Russia, whose November oil output of 11.21 million barrels per day (bpd) was its highest in nearly 30 years, has reportedly reduced production by about 100,000 bpd, or one third of what it pledged as part of the Organization of the Petroleum Exporting Countries (OPEC) agreement to remove a total of 1.2 million bpd from the overly saturated global market.

JBC Energy said in a note last week, "We expect Russian crude and condensate output to decline only gradually from the remarkable September-December 2016 production levels, and to reach the announced 300,000 bpd output cut at the end of H1 2017."

This follows Saudi Arabia fully living up to its pledge of cutting production by at least 486,000 bpd to 10 million bpd, as well as Qatar, Kuwait, and Oman complying with the agreement, according to Nawal Al-Fezaia, OPEC governor for Kuwait.

Presumably emboldened by the spirit of cooperation, Essam Al-Marzouq, oil minister for Kuwait, on Monday said that he expects a "big commitment" by OPEC and non-OPEC members to contribute to the reductions: he also downplayed the notion that the cuts may not be fully achieved by the time a committee meets in Vienna on January 21-22 to monitor compliance with the agreement.

He said, "The first data for the production cuts will be clear by the beginning of February and even if the cut was not complete, it would be a start."

All but left by the wayside in the reporting of initial compliance is the lingering argument that the agreed to cuts, which analysts complained were not enough to begin with, have been further mitigated by record production undertaken by OPEC and non-OPEC members in advance of the agreement's start date.

That may have been weighing in the minds of traders on Monday, as U.S. crude futures settled down $2.03 to $51.96 per barrel, and Brent futures settled down $2.16 to $54.94 per barrel.

The 4 percent decline was also driven by Iraq, OPEC's second-biggest producer, posting record-high December oil exports of 3.51 million bpd.

In fact, Robert Yawger, director of the futures division at Mizuho Securities USA, views Iraq as a substantial threat to whatever positive impact the cutback deal may have on the world market: "With the big numbers coming out of the southern port of Basra for December ... it's implying that Iraq may be the first big crack in the wall of the OPEC agreement."

He added, "We have compliance with the Gulf countries, but the rest of the slate is looking a bit shaky."

JBC Energy's prediction aside, many critics are still skeptical that competing producing nations will follow through with the agreement over the long haul, and Yawger last month was quoted as saying about OPEC with regards to Russia, "they are going to be hard-pressed to squeeze 300,000 barrels from this crew."