Russian oil output hits new post-Soviet era record

Production of 11.29 million to 11.36 million barrels a day beats the previous record of 11.25 million barrels a day set in October 2016

Rosneft signage in Vladivostok, Russia. The country's crude production is at a record high. Bloomberg

Russia’s crude production has jumped to a new post-Soviet record, boosting the nation’s budget revenue as it prepares for talks with Opec+ on further cooperation, according to a government official.

The country’s oil output is currently fluctuating between 1.54 million and 1.55 million tonnes a day - driven mainly by state-run giant Rosneft - the official said, asking not to be named. That equates to 11.29 million to 11.36 million barrels a day, beating the previous record of 11.25 million barrels a day set in October 2016 before Russia agreed with Opec to cut production.

Russia’s output increase comes just days before it meets in Algeria with other members of the group known as Opec+. The producers agreed in June to start rolling back their output cuts to offset losses from countries including Venezuela and Iran while also responding to calls from US President Donald Trump to ease pressure on prices. This weekend, ministers will discuss supply and demand forecasts for the fourth quarter and the potential for extending cooperation into next year.

While Russia could boost its production by about 300,000 barrels a day above the October 2016 record within a year, there’s still no decision on tapping this spare capacity and the size of the increase will depend on talks with the wider Opec+ group, Russian Energy Minister Alexander Novak said last week.

Oil was trading near two-month highs in London, at almost $80 a barrel, as concern over demand contraction amid US-China trade tensions is countered by supply losses from Iran and Venezuela.

Crude in roubles is close to the highest-ever levels reached earlier in September amid the currency’s weakness. Russia’s budget gains from energy taxes are set to jump almost 46 percent this year to a record-high 8.707 trillion roubles (Dh481.09 billion), according to estimates from the Russian Finance Ministry. Reliance on energy, which President Vladimir Putin has been struggling to cut in the past few years, is set to exceed 46 per cent of the country’s overall budget, compared to 40 per cent in 2017. That would be the highest level since 2014.

If Russian producers maintain September levels through to the end of the year, the nation’s full-year output target could be increased to 555 million tonnes, meaning an additional 2 million tonnes in the remaining 100 days, the government official said. That equates to as much as 150,000 barrels per day in addition to last month’s output of 11.21 million barrels.

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Russia’s Energy Ministry and Rosneft, which accounts for more than 40 per cent of the nation’s production, didn’t immediately comment. The highest level reached by the country during the Soviet era, on an annual-average basis, was 11.416 million barrels a day in 1987, according to BP data.

While state forecasts anticipate an increase in production later this year, there’s no clarity yet on 2019 plans. The current Opec+ cuts deal expires at the end of this year, unless producers replace it with a new one. Novak has said that Russia sees the need for continued cooperation across the group. This could involve removing output quotas but with an option to use this tool in future if the market requires.

Russia’s major oil producers have so far declined to comment on their output targets for next year. Gazprom Neft, the nation’s third-biggest oil producer, said it has the capacity to increase output next year. “We in principle are aiming to show growth,” chief financial officer Alexey Yankevich said this month. “But everything will depend on how the Opec+ agreement will look.” The company hopes there will be some clarity by December when plans for 2019 are set.