4 Oct

Analyzing Russia’s Crude Oil Production

WRITTEN BY Gordon Kristopher

Russia’s crude oil production  

Russia’s crude oil production rose to 11.11 MMbpd (million barrels per day) in September 2016, according to the Russian Ministry of Energy. Production rose 4% month-over-month. It’s the highest level since 1988. Russia’s crude oil production peaked at 11.41 MMbpd during the Soviet era in 1988. Russia’s crude oil production averaged 10.84 MMbpd in 2Q16. Russia is the world’s top crude oil producer for the tenth consecutive year.

Analyzing Russia’s Crude Oil Production

Russia’s crude oil production estimates  

UBS estimates that Russia’s crude oil production will rise in 2017. Market surveys project that Russia’s crude oil production will rise in 2016 due to healthy drilling activity. It’s estimated that Russia will drill 7,595 wells in 2016. Russian drilling was up 9.9% in 2015 compared to 2014 due to Rosneft’s expansion activity.

The Russian Ministry of Energy estimates that Russia’s crude oil production will average 10.92 MMbpd in 2016—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.

In its monthly oil market report in September, OPEC (Organization of the Petroleum Exporting Countries) stated that Russia would produce 11 MMbpd of crude oil in 2016—1.3% higher than in 2015. This is also 20,000 bpd more than previous estimates. However, Russia has shown interest in capping crude oil production along with OPEC producers to support crude oil prices. For more on crude oil prices and oil producers meeting, read Part 1 and Part 2 of this series.

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 Northern Oil & Gas (NOG), Contango Oil & Gas (MCF), Stone Energy (SGY), and Sanchez Energy (SN).

Volatility in oil and gas prices also impacts 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 ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the ProShares Ultra Oil & Gas (DIG), 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 impacts crude oil prices.

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