BOFIT Weekly Review 2016/08
Russia discusses caps on oil production
The energy ministers of Russia and Saudi Arabia, the world’s two largest crude exporters, met last week with representatives from Kuwait and Venezuela. They agreed on freezing crude oil production at the January 2016 level if other OPEC members agree to the deal. That has not happened so far.
The potential cap on production volumes is seen as a way to influence oil prices. It is easy for Russia to stick with January’s production volumes; Russia’s energy ministry says Russian crude oil production hit a record level of more than 46 million tons in January. If output holds at this level for all of 2016, Russian oil production would climb almost 3.5 % this year from last year. This seems unlikely as many observers see that Russia is already at its oil production ceiling.
With old fields drying up and new investment hard to come by, oil production in Russia is expected to decline in coming years. The October forecast of Russia’s economy ministry predicts oil production will contract by about 0.5 % in 2016 and 2017. The latest report of the International Energy Agency (IEA) sees Russian oil production falling in coming years by nearly 1 % a year. Saudi Arabia lacks production constraints similar to Russia’s.