Russia’s weak December oil production signals lack of capacity

(Bloomberg) --Russia failed to boost oil output last month despite a generous ramp-up quota in its OPEC+ agreement, indicating the country has deployed all of its current available production capacity. 

With OPEC+ meeting in two days to consider output policy in the face of the fast-spreading omicron variant, Russia’s lack of growth highlights the limits of the group’s attempt to boost supply if demand continues to recover. Saudi Arabia, Iraq and the UAE can raise output, but others such as Angola, Nigeria and Kuwait are struggling to meet their quotas.

Russian companies pumped 46.11 million tons of crude oil and condensate last month, according to preliminary data from the Energy Ministry’s CDU-TEK unit. That equates to 10.903 million barrels a day -- based on a 7.33 barrel-per-ton conversion rate -- and is flat to November.

It’s difficult to assess Russia’s compliance with the OPEC+ deal, as the CDU-TEK data don’t provide a breakdown between crude and condensate -- which is excluded from the agreement. If condensate output was the same as in November -- some 930,000 barrels a day -- then daily crude-only production was around 9.973 million barrels, about 37,000 barrels below its December quota.

Until recently, Russia ramped up production by restoring operations at wells that were shut-in or idled in spring 2020 as the pandemic shattered global demand. Now any further growth in output will mostly come from newly drilled wells, officials at Lukoil PJSC and Gazprom Neft PJSC said late last year.

OPEC+ will meet Jan. 4 to discuss output plans for February as uncertainty remains over the impact of the omicron strain on energy consumption.

“We’ll monitor the situation and see how the market behaves,” Deputy Prime Minister Alexander Novak said in an interview with RBC news outlet on Dec. 29, when asked whether the spread of omicron could delay OPEC+ output ramp-ups.