OPEC+ will continue production cuts until the summer

The Russian government, within the framework of the OPEC+ agreements, announced the extension of the voluntary reduction in production and exports of oil and petroleum products to the second quarter of 2024. Thus, Russia undertakes to voluntarily reduce oil production by 471 thousand barrels per day (b/d) by the end of the second quarter. In fact, this is a continuation of the agreements that the OPEC+ countries reached last fall; such a step was expected by the market. The Russian Federation resorted to reducing exports last year, but this had little effect on oil production, which decreased by only 1%.

The Russian Federation promised to voluntarily reduce the production and export of oil and petroleum products in the second quarter of 2024 by 471 thousand bpd as part of “precautionary measures taken by OPEC+ countries to maintain the stability and balance of oil markets.” Deputy Prime Minister Alexander Novak told reporters about this. Mr Novak said the voluntary production cuts were being carried out “in coordination with some OPEC+ member countries.” Saudi Arabia, Kuwait, Algeria, and Oman have already announced the extension of their cuts.

In fact, we are talking about extending the obligations that Russia had already assumed in the fall of 2023 for the first quarter of 2024.

Then they talked about reducing exports by 500 thousand b/d of oil and petroleum products, but the Russian authorities did not disclose in what proportion these supplies would be reduced. In the fall, the government introduced an embargo on the export of gasoline and diesel fuel to saturate the domestic market, so obligations under OPEC+ had virtually no effect on oil exports. Since March, Russia has reimposed an embargo on gasoline exports. Managing the export of petroleum products allows the Russian authorities to increase supplies to the domestic market, while at the same time declaring a decrease in overall oil exports as part of the OPEC+ deal.

In practice, the authorities’ actions had little impact on oil exports and overall production in Russia. According to Alexander Novak, the Russian Federation last year reduced production by less than 1%, to 530 million tons. According to his forecast, in 2024 production in the Russian Federation will amount to 520–530 million tons. According to the OPEC deal, Russia’s quota for 2024 is 9.95 million bpd (excluding gas condensate).

Alexander Novak for the first time revealed details of the reduction in oil production and exports in the second quarter. According to him, in April the reduction in oil production will be 350 thousand b/d, and exports – 121 thousand b/d, in May – 400 thousand b/d and 71 thousand b/d, respectively. In June, the volume of production cuts will reach 471 thousand bpd. The basis for the reduction in exports will be the average level for May-June 2023.

“Subsequently, in order to maintain market stability, these additional reductions will be gradually restored depending on market conditions,” said Alexander Novak.

Dmitry Kozlov