Just two days after the collapse of international oil-supply talks in Doha, Russia signaled it isn’t afraid to play a game of chicken.
Freed from a plan to coordinate output with OPEC members, Russian officials said Tuesday that the country may boost both production and exports. Daily output in 2016 could grow by 100,000 barrels to 10.81 million, according to Deputy Energy Minister Kirill Molodtsov.
“And why not?” he said at the National Oil and Gas Forum in Moscow. “It’s possible.”
Talks among major oil producers on capping output to support prices unraveled on Sunday after Saudi Arabia said an agreement wasn’t possible without the participation of Iran. A freeze deal would have marked the first collaboration between the Organization of the Petroleum Exporting Countries and Russia in 15 years as a global glut keeps oil prices 60 percent below their 2014 high.
Significant Increase
Russian crude producers can boost output even in an environment of low oil prices as their operating costs don’t exceed $4 per barrel, Maxim Nechaev, director for Russia at IHS Inc., said at the forum. “Irrespective of whether the oil price is $45 to $50 per barrel or goes even lower to $35 per barrel, we’ll probably see an even more significant output increase this year than last year.” In 2015, production rose 1.5 percent, according to CDU-TEK data.
Russian crude exports to countries outside the former Soviet republics could grow to as much as 255 million metric tons this year, or 5.11 million barrels a day, First Deputy Energy Minister Alexey Teksler said at the forum. Such an increase, more than 4 percent, would send an extra 300,000 barrels a day into international markets even as Middle Eastern producers jockey for market share. Iran is seeking to ramp up output to pre-sanctions levels, while Saudi Arabia has said it could “immediately” raise production by 1 million barrels a day.
While the ministry offers the possibility of higher crude supply, Russia risks a decline as soon as next year unless the tax burden is eased, Leonid Fedun, vice president at Russia’s second-largest crude producer Lukoil PJSC, told reporters at the forum. The government this year raised the oil production tax and shelved plans to lower export duties for crude and oil products to help cover a widening budget gap as Russia combats its longest recession in two decades.
The Doha talks benefited Russia’s budget even without yielding an agreement as they boosted the oil price and drove some speculators out of the market, Fedun said.
“Russia received at least $2-3 billion of additional revenue,” Fedun said. As for sparring oil producing nations, “sooner or later they’ll agree,” he said. Bloomberg
