Alexander Novak, Russia’s energy minister, said this week that the country’s various state-owned oil companies are prepared to toe the Kremlin line and ratchet back production as part of a coordinated effort with OPEC to ease the global glut of crude. Reuters reports:
Russia has pledged to cut output by 300,000 bpd to 10.947 million bpd in the first six months of 2017. “We agreed that the reduction will be in proportion to the production volumes (of each company),” Energy Minister Alexander Novak told reporters after meeting 12 oil producers that account for around 90 percent of Russian output.
This is the first such deal between the Organization of the Petroleum Exporting Countries and Russia since 2001, when Moscow agreed to cut oil exports by 150,000 bpd – a promise it later reneged on due to rising oil prices.
The cuts envisioned by this group of petrostates would, if fully implemented, remove 1.8 million barrels per day from the global supply. The International Energy Agency (IEA) believes that that reduction would be enough to end the glut. Russia’s role in this reduction would account for nearly 17 percent of those cuts, but Moscow’s task won’t be as painful as its producers might claim, because over the past few months, the country has pushed its oil output up above 11 million barrels per day, a post-Soviet record.
But while the IEA might be sanguine about the efficacy of these petrostate plans, plenty of questions remain. For one, the cuts for Russian oil producers, according to Novak, will be voluntary. That would seem to leave the door wide open to backing out or not fully implementing these cuts (something Russia has a history of doing). The biggest potential sticking point in all of this, however, remains the ability of American shale producers to take advantage of rising prices by upping their own production. If and when that happens, we’ll see the limiting effect these companies can have on the efforts of OPEC and its ilk—and in the process the United States will get a boost to its own energy security.