Crude oil production remains high
Russian energy companies continued to extract crude oil at record volumes in December. According to data made available by the Ministry of Energy, Russia produced 11.21 million barrels per day of crude oil last month, unchanged from November levels.
Production had surged to 11.24 million barrels a day in October – a post-Soviet-era record.
In tonnage, crude oil production increased to 47.4 million in December, up from 45.9 million in November.
Oil production cut
In late 2016, the OPEC (Organization of the Petroleum Exporting Countries) had decided to cut crude oil production and 11 non-OPEC nations had agreed to reduce production by 558,000 barrels per day. Of this, Russia is expected to reduce its production by 300,000 barrels a day.
Russia’s Energy Minister Alexander Novak had sounded positive on the aforementioned production cut. He had informed that the first stage of reduction in production will be seen in early January 2017 itself.
However, according to Reuters, Russia’s Energy Ministry has said that the planned decline in production would only be gradual citing weather and technological conditions.
Crude oil revenue crucial for Russia
Brent crude oil prices are considered a benchmark for Russia’s oil exports. It is estimated that oil and gas exports contribute a third of Russia’s total budget revenue. Given this reliance on oil exports, it’s not surprising that energy prices are major drivers of Russian equities (RSX) (ERUS).
After having seen a low of $26 a barrel earlier in the year, prices have been over the $50 a barrel mark throughout December, ending the month at over twice the level of the intra-year low. This has resulted into a surge in Russian equities (RBL).
Russia’s budget is based on a crude oil price of $40 per barrel. Hence, if the price range remains between $50 and $60 a barrel, the Russian government will be pleased.