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Why Did Russia’s Crude Oil Production Fall?

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Sep. 6 2016, Published 8:45 a.m. ET

Russia’s crude oil production 

A Reuters survey reported that Russia’s crude oil production fell to 10.71 MMbpd (million barrels per day) in August 2016—compared to July 2016. It’s the lowest production levels in almost a year. Roseneft reported that Russia produced 10.85 MMbpd of crude oil in July 2016. Russia is one of the largest crude oil producers in the world. The Russian Energy Ministry reported that crude oil production fell due to the decline in crude oil production by oil producers like Rosneft, Bashneft, and Novatek.

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Russia’s crude oil production estimates 

Russia’s crude oil production averaged 10.84 MMbpd in 2Q16. Production peaked at 10.9 MMbpd in January 2016—the highest level since the Soviet era.

The Russian Energy Ministry estimates that Russian crude oil production will average 10.92 MMbpd in 2016. Russia’s crude oil production averaged 10.73 MMbpd in 2015. It was the highest in the last 30 years. However, the International Energy Agency expects Russia’s production to fall in 2016 due to inadequate pipeline infrastructure to transport the rising crude oil production.

Russia’s advantage and challenge 

The low cost of production, depreciating Russian ruble, and profit-based tax system for oil companies by the Russian government will motivate Russia to produce more crude oil. However, lower crude oil prices, dependence on oil export revenue, and the tussle for market share will pressure oil producers.

Impact on crude oil prices, stocks, and ETFs  

Strong crude oil supplies due to rising crude oil production will have a negative impact on crude oil prices. Lower oil prices will have a negative impact on oil and gas producers’ earnings such as Carrizo Oil & Gas (CRZO), Warren Resources (WRES), and Swift Energy (SFY).

The ups and downs in oil and gas prices also impact funds such as the iShares Global Energy (IXC), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the United States Oil ETF (USO), the ProShares Ultra Bloomberg Crude Oil (UCO), the Energy Select Sector SPDR (XLE), and the iShares US Oil Equipment & Services ETF (IEZ).

In the next part of this series, we’ll look at how Saudi Arabia’s crude oil production could weigh on crude oil prices.

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