Russia and Saudi Arabia Could Be a Game Changer



Russia’s oil production 

Russia is the largest crude oil producer in the world. Russia’s energy ministry reported that Russia’s oil production fell by 10,000 bpd (barrels per day) to 11.11 in January 2017—compared to the previous month due to major producers’ production cut deal. The fall in production from Russia would support crude oil (BNO) (USL) (IEZ) (IYC) prices. For more on crude oil prices, read Part 1 of the series.

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Russia and Saudi Arabia’s oil production  

Russia and Saudi Arabia are the top two oil producers in the world. OPEC (Organization of the Petroleum Exporting Countries) and Russia contribute 49% of the global crude oil production.

OPEC and Russia’s compliance with major producers’ production cut deal shows that they can work together to support oil prices by cutting oil production. Russia said that it would reduce its production by 300,000 bpd from 11.21 MMbpd in oil producers’ meeting in November 2016. OPEC and Russia could become an extended OPEC and play the role of swing producer. For more on OPEC, read the Part 3 of this series. For more on Saudi Arabia, read the previous part of the series.

High crude oil prices have a positive impact on crude oil and gas producers’ earnings like QEP Resources (QEP), Synergy Resources (SYRG), Chevron (CVX), and Sanchez Energy (SN).

Russia’s crude oil production estimates in 2017

Russia’s crude oil production peaked at 11.41 MMbpd during the Soviet Era in 1988. Russia’s crude oil production averaged ~10.97 MMbpd in 2016—the highest level in the last 30 years. Market surveys estimate that Russia’s crude oil production will rise by 170,000 bpd to average 11.14 MMbpd in 2017. The EIA estimates that Russia’s crude oil and other liquid production will average 11.36 MMbpd and 11.41 MMbpd in 2017 and 2018, respectively.

Impact on crude oil prices, stocks, and ETFs 

Russia showed its commitment to the deal by cutting its production in the first half of January 2017. Falling production would support crude oil prices in 1H17.

A Reuters poll estimates that Russia’s crude oil production will hit new highs in 2H17 after major oil producers’ production cut deal expires in June 2017. It could pressure oil prices in 2H17.

In the last part of this series, we’ll take a look at some crude oil price forecasts.


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