March 14, 2017
Russian oil output averaged 11.11 million bbl/d in February 2017, representing no further output reductions relative to the January 2017 level. Since the early December 2016, the Russian government has been reassuring the industry that the country will reach the production cut target of 300 kbbl/d relative to October 2016 by April 2017.
According to the latest production numbers by operator, the top three producers are on track with meeting their production targets. Rosneft contributed the most to the output reduction so far, while most of the smaller operators have not yet shown compliance with their individual production cut targets.
“Our Russian production forecast for March 2017 is 11.03-11.05 mmbbl/d, a cut of an additional 60 kbbl/d from February 2017 output. As of today, we see an upside risk to Russian oil output due to the lack of evidence of production cuts from the smaller producers” says Veronika Akulinitseva, Analyst at Rystad Energy.
Relative to October 2016 (output of 11.23 mmbbl/d), Russia has so far reduced output by only 40% of the agreed 300 kbbl/d cut.
“While it is possible that Russian producers will meet their full compliance target cut by April 2017, we are more skeptical that they will, given their February 2017 production numbers and that the cut is voluntary by producers” says Nadia Martin Wiggen, VP Markets at Rystad Energy.
Of additional concern is the example non-compliance Russia sets for other non-OPEC production cutters. While Saudi Arabia is leading by example amongst OPEC members by exceeding cut targets since the start of 2017 to help ensure complete compliance, Russia through individual operators is sending the opposite message.