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Russia finds it challenging to keep the lid on oil output

Russia finds it challenging to keep the lid on oil output

MOSCOW (Reuters) - Russia, in a rare admission of oil overproduction, said overnight that it exceeded its OPEC+ production quota in April for "technical reasons", a surprise move that analysts and industry sources say shows Moscow faces challenges in curbing output.

Russia, Saudi Arabia, as well as some other members of the OPEC+ group of leading oil producers, have pledged extra oil output cuts on top of what had already been agreed, to support the oil market, a key generator of revenues for their budgets.

The Russian Energy Ministry said in a midnight statement that the country maintained production below the OPEC+ quotas through the first quarter of 2024.

It said that April's overproduction was attributable to "technical particularities of reducing production by a significant amount."

The ministry did not reply to a request for additional comment.

The statement was issued as OPEC+ prepares to meet on June 1 to discuss further production policy.

Alexei Kokin, an independent analyst, said one of the reasons Russia was struggling to cut output in April was that this month accounted for almost three-quarters of all cuts the country pledged in the second quarter.

"I think this is what is meant by 'technical peculiarities of reducing production by a significant amount.' It is impossible to reduce production so quickly," he said.

According to OPEC, Russia, the world's second-largest global oil exporter, reduced oil production in April by 154,000 barrels per day (bpd) from March to 9.29 million bpd. Oil production in Russia in the first quarter averaged 9.42 million barrels per day.

Russia's oil output quota, including additional voluntary cuts within OPEC+ for April, stood at around 9.09 million bpd, according to Reuters calculations.

Russia has classified oil production data since the start of what it calls a "special military operation" in Ukraine in February 2022.

Ronald Smith, a senior analyst at Moscow-based BCS World of Investments brokerage, said that the "technical reasons" for overproduction could be related to field management as oil fields, especially older ones, cannot be simply "turned off" without potentially damaging their ultimate production capacity.

Russia cut crude oil and fuel exports by a combined 500,000 bpd in the first quarter, in addition to its previous pledge to curtail production alongside other members of the OPEC+ grouping.

Russia has said it would gradually ease the export cuts: in April, it should have reduced output by an extra 350,000 bpd, with exports cut by 121,000 bpd. In May, the extra output cut will be 400,000 bpd and exports cut by 71,000 bpd. In June, all the additional cuts will be from oil output.

A Russian company source also said that it's been difficult to reduce oil production due to challenging production processes, including high pressure in oil wells. 

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