Russian production capacity supports output rise: Novak

Russia has sufficient production capacity to allow a 300,000 b/d increase in crude output within a year compared to levels in October 2016, a month before it started to cut production under the Opec and non-Opec production deal. But such an increase would happen only if it is economically sensible, Russian energy minister Alexander Novak said.

"I believe Russia has the potential to increase oil production by 300,000 b/d... in addition to October 2016," Novak said on the sidelines of the Eastern Economic Forum in Vladivostok today.

"I think that during a year [it would be technically possible], but these estimates are always subject to re-evaluation, depending on conditions in which our oil firms work in a certain period of time", he said.

A 300,000 b/d increase in Russian crude output from October 2016 would be equivalent to growth of around 347,000 b/d from current levels. Russia's oil production in August was 47,000 b/d lower than in October 2016, and output is likely to be unchanged in September, the energy ministry said earlier this month.

Russian crude production in August was 47.41mn t, or 1.529mn t/d, down by 0.2pc from 47.49mn t or 1.53mn t/d in October 2016. The ministry does not announce output figures in b/d, saying the conversion factor varies from month to month and across different fields because of fluctuations in the quality of crude.

The Opec and non-Opec agreement signed at the end of 2016 required Russia to cut oil production by 300,000 b/d from October 2016 levels, or 2.7pc. Russia's compliance with these obligations was slightly less than 100pc in the first half of 2018, notably 93.4pc in March, 95.2pc in April and 95pc in May.

Total compliance with the Opec and non-Opec deal was above 100pc in the first half of this year, encouraging participants to agree a 1mn b/d increase in production from the June 2018 level with a view to bringing overall compliance back to 100pc. But some countries have limited ability to raise their production, giving Russia the opportunity to take its own oil output closer to October 2016 level.

The Joint Ministerial Monitoring Committee (JMMC) that tracks compliance with the production deal will hold its next regular meeting on 22-23 September in Algiers to discuss market fundamentals and further actions to be taken by member countries.

The global oil market is in a "fragile" balance, given production issues in Mexico and Venezuela and uncertainty over supplies from Iran because of new US sanctions against the country, Novak said today.