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Petrostates in Peril
Russia Caps 2015 With Record-Setting Oil Production

Moscow is set to round out 2015 with a post-Soviet oil production record, as it’s on track to pump 10.86 million barrels of oil per day this week. Bloomberg reports:

The country’s crude and gas condensate production for the whole of December is on track to average 10.783 million barrels a day, almost matching November’s record of 10.785 million, according to Bloomberg estimates based on the data. […]

Russian companies have been helped by a weaker ruble that reduced the cost of services such as drilling, and a tax system in which the state bears most of the risk and reward from price movements. […]

Russia’s December output was boosted by the OAO Novatek-led Yargeo venture’s Yarudeyskoye field, which started producing on the first day of the month, according to a statement from the company. Output from the deposit will rapidly reach 70,000 barrels a day, the company said Dec. 1. Novatek didn’t immediately reply to a query about current output form the unit.

Like any other petrostate, Russia finds itself in a bind with today’s oversupplied oil market: The crude that was fetching more than $110 per barrel in June of last year can’t clear $40 per barrel today, leading to a massive loss of revenue. Because the Russian national budget relies heavily on oil and gas sales, this has national security implications, and there are no easy fixes. For now, Moscow has little choice but to ramp up production to try to offset bargain prices by selling more—a strategy also being employed by OPEC’s 13 members—and, as a result, it’s nearing those post-Soviet records.

Of course, this only exacerbates the global oil glut, and if it doesn’t immediately depress prices, then it surely works to depress any sort of rebound. And that’s the state of the oil market today: Private firms (read: U.S. frackers) are finding new ways to stay profitable at $36 per barrel while petrostate producers fight tooth and nail to protect their share of a market in which supply overwhelms demand. 2015 was a rough year to be in the business of selling oil, and with Iran ready to boost its exports when Western sanctions are lifted, next year looks to be even worse.

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  • GS

    Isn’t operating at a maximal extraction rate deleterious to the long-term production from a given field? If it is so, then the decision to pump like hell during the lower price period is doubly damaging.

  • Anthony

    The collapse in the price of oil is a challenge to the old world order – we’re awash with the commodity! Russia will probably incur (if she hasn’t already) a budget deficit and President Putin may be forced to tap into reserves.

    Finally, HAPPY NEW YEAR Via Media/TAI!!

  • Jacksonian_Libertarian

    While the American Shale Oil Developers have momentum cutting costs as they have been for years, the Government Monopoly owned Oil Monopolies don’t even try to cut the costs of production. They even pay more to drill new wells in already known fields increasing production costs just so they can drain them faster, something privately owned oil developers would find insane.

    • nepali hercules

      they’re drilling more so that shale oil producers won’t drill more. if they cut, the americans will just keep pumping. you should try and look at it from their point of view.

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