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RIYADH: The Brent crude oil price fell slightly to $61.64 per barrel at the end of last week, amid perceptions that Russia might not be able to promptly comply with OPEC+ output cuts agreed in December.
As part of the deal, Russia agreed to cut its production by 230,000 million barrels per day (bpd) from the 11.41 bpd touched in October.
But the latest OPEC Monthly Oil Market Report (MOMR) forecasted that Russia will not fully comply with the cuts agreement during the first half of 2019.
Due to its old oil infrastructure and mature oil fields, Russia cannot promptly decrease oil production — and the market is waiting to see where its output level for the first quarter of 2019 stands.
Unlike in ¶¶Òõ¶ÌÊÓƵ — where Aramco is the only state oil producer — Russia has many major oil companies. These include the largest oil producer Rosneft — which produces over 4 million bpd — along with Lukoil, Surgutneftegaz, Gazprom and others.
During the OPEC meeting in Vienna in December 2018, Rosneft announced that its oil output forecasts for the the first six months of 2019 remain unchanged. That is mainly because Rosneft aims to increase production from three new fields it launched in Siberia in 2018. This led some market participants to question not only Russia’s compliance with the new OPEC+ agreement, but also that of other non-OPEC producers.
Market participants are confused by some of the statements from Russia with regard to energy policy and compliance with OPEC+ output cuts. Unlike what is seen with OPEC producers, statements by Russia’s energy minister sometimes vary from those made by executives of the country’s oil companies.
The compliance with the agreed output cuts — in which OPEC members and other large oil producers including Russia agreed to cut their combined crude production by 1.2 million bpd from January to halt a decline in oil prices — will be key to balancing the market in 2019.
Despite question marks over Russia’s compliance with the deal, OPEC in 2018 managed the various challenges successfully and was, as a whole, able to alter its output strategy based on the market needs.