Page 15 - FSUOGM Week 31

FSUOGM PERFORMANCE FSUOGM

Russian producers turn on taps

after OPEC+ cuts eased

RUSSIA RUSSIAN oil production in line with the coun- m/m and by 48% versus 1Q20, while Bashneft's
try’s OPEC+ commitments, the country’s energy production shrank 30% m/m and 54% versus
Russia's biggest ministry has said, but producers are now turning 1Q20. "Such a weak operating performance
producers began on the taps to claw market share from their rivals spells significant risks for Bashneft minorities,
preparing for the eased now that supply cuts have been eased. as at least the near-term dividend flow is likely to
cuts in July. Data published by the Russian energy min- be affected," Sberbank CIB warns.
istry shows that the country extracted 39.63mn Oil prices dipped on August 3, as traders
tonnes (9.37mn barrels per day) of crude oil and feared that the return of OPEC+ production
other hydrocarbon liquids last month, versus could lead to surplus supply again, as coronavi-
9.33mn bpd in June. The ministry later noted rus (COVID-19) outbreaks continue to weigh
that Russia’s compliance with record OPEC+ down on fuel demand.
cuts in July was close to that record in June, when “A mini-glut, created by the returning oil
it stood at 99%. production, is to be expected for the next four
Under the oil cartel’s April deal, Russia months,” Rystad Energy analyst Bjornar Ton-
pledged to keep its oil output at less than 8.5mn haugen said in a research note. “But demand
bpd over the last three months. The agreement should pick up from November, so the bearish
does not cover condensate production. indicator is likely to only last for the summer and
These cuts have now eased as of August autumn’s summer blues.”
1, allowing Russia to bring back an extra OPEC+ will maintain their current quo-
500,000 bpd of supply. Russian producers tas until the end of the year, after which point
are taking advantage of the relaxed restric- restrictions will be eased again. But other pro-
tions, with oil and condensate output rising ducers are also bringing back supply, including
to 9.8mn bpd on August 1-2, sources told some US shale drillers, potentially putting prices
Reuters on August 4. under pressure. Some OPEC+ members may
Sberbank CIB on August 4 also reported also become less committed to the production
that Russia's main producers had been prepar- pact, if rival producers in the US and elsewhere
ing for the increased quotas even before July are seen as profiting through their sacrifice.
ended. Based on preliminary estimates, Rosneft COVID-19 remains the wildcard in the pack.
increased daily liquids production 0.4% month Rystad has accounted for a mild second wave of
on month in July, Lukoil by 1.5% m/m and Gaz- the pandemic in its models, but “if the virus is
prom Neft 2% m/m, the increases coming mainly not contained the effect could spiral further.”
at the expense of other smaller producers. “News from Europe is not as the market
Out of the smaller producers Slavneft (a hoped for; infections are rising in countries that
joint venture of Rosneft and Gazprom Neft) had so far managed to contain the virus, as lock-
and Bashneft (subsidiary of Rosneft) cut flows downs have been scrapped.”
the most so that their parent companies could Oil markets will be volatile in August, com-
produce more. pared to the relative calm in July, the consultancy
Slavneft's July crude oil output dropped 25% predicted. ™

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