BOFIT Viikkokatsaus / BOFIT Weekly 2019/50

Over the past three years, Russia has worked closely with OPEC members in a number of voluntary agreements to restrain crude oil production and stabilise prices. Partly as a result of the increased cooperation between Russia and Saudi Arabia, oil-producing countries in recent years have managed, at least to some extent, to hold to the agreed production ceilings in order to support oil prices. The combined crude oil production of Russia and OPEC represents roughly half of global oil output.

At the beginning of 2017, OPEC members, Russia and several other non-OPEC producer countries (a group sometimes referred to as “OPEC+”) agreed to voluntarily reduce their combined output by about 1.7 million barrels a day. Under the deal, Russia was obliged to cut its daily production by 0.3 million barrels. The agreement was later extended several times through June 2018. Russian oil production rose to a record-high level in autumn 2018, but the countries met again and agreed to reinstate roughly 1.2 million barrels in cuts from the start of 2019.

At last week’s (Dec. 6) OPEC and Non-OPEC Ministerial Meeting, the parties agreed to new production cuts until the end of March 2020. Overall, the parties agreed to cut production by roughly 1.7 million barrels in 1Q2020. In addition, Saudi Arabia committed unilaterally to reduce its own production by about 0.4 million barrels a day. As in its previous agreements, Russia committed to cuts of about 0.3 million barrels a day. The required cuts are, however, smaller than earlier, as gas condensate production will no longer be included in Russia’s production quota. Energy minister Alexander Novak noted that under the new calculation method, which excludes gas condensates, Russia would have more than exceeded its reduction targets in November 2019, even if it only achieved 85 % of its agreed cuts under the old system.