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Abu Dhabi, UAEMonday 10 December 2018

Russia's oil output dips in November ahead of Opec+ meeting

The production decline is the first since the beginning of this year

Russia produced 11.369 million barrels a day of crude and condensate last month, a 0.42 per cent decline from October. Bloomberg
Russia produced 11.369 million barrels a day of crude and condensate last month, a 0.42 per cent decline from October. Bloomberg

Russia’s oil production fell ahead of a crucial meeting with OPEC this week to decide supply strategy as prices slump.

Russia produced 11.369 million barrels a day of crude and condensate last month, a 0.42 per cent decline from October, according to preliminary data from the Energy Ministry’s CDU-TEK unit. That was the first monthly decline in the nation’s oil output since the beginning of the year.

With Brent plunging more than 30 per cent since early October, Russia and Saudi Arabia agreed on Saturday to coordinate their actions in the oil market next year, extending the so-called OPEC+ agreement. While the decision opens the door for a deal at the meeting Russia and Opec are holding in Vienna this week, its details, including the size of any potential output cut, are still unclear.

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Russia pumping at lower levels is not necessarily a signal that its producers are returning to output cuts before the Vienna meeting has made any decision. Instead, seasonality and factors at individual fields may be responsible, analysts said.

“This does not look like an intentional cut at all,” said Maksim Nechaev, director for Russia at IHS Markit. “In current market conditions, the companies aim to pump as much as they can to support their revenue flow.”

Gazprom Neft, the oil arm of gas giant Gazprom, and Lukoil, Russia’s second-largest oil producer, drove the decline in output last month, according to CDU-TEK data. Gazprom Neft decreased its production by 4.71 per cent on the October level, while Lukoil’s drop reached 0.91 per cent.

Rosneft, Russia’s largest oil company, pumped slightly more than in October at its key projects, excluding joint ventures and the Bashneft unit. Rosneft’s East Siberian greenfields and the Soviet-era Samotlor were the main output-growth sources for the company. Russia offers tax breaks for these fields, which could give Rosneft an extra incentive to raise production there.

Russia aims to keep its oil output near average October levels until the year-end, Energy Minister Alexander Novak told Tass news agency last week. This may imply that a slight production growth is possible this month even amid a further Brent slump. Russian crude producers are resilient to the current price declines as the flexible ruble exchange rate and the tax system provide a natural hedge for their costs.