Russia starts oil output cuts

Russia has begun cutting oil output within the framework of last year's agreement among major producers to limit supply and bolster global prices, a source familiar with the course of the agreement said.

"We began the reduction. The rate so far exceeds the target 50,000 barrels per day for January," Sputnik cited the source as saying.

The Russian Ministry of Energy has received an invitation to a meeting of the Ministerial Committee for monitoring implementation of OPEC agreement on reducing oil production, which will take place in Vienna on January 21-22.

"We have received the invitation, has not yet decided who will go," TASS cited a representative of the Ministry as saying.

An associate professor of the Graduate School of Corporate Management of RANEPA, Ivan Kapitonov, speaking with a correspondent of Vestnik Kavkaza, noted that by doing so, Russia is trying to show its good will in relation to the implementation of the agreement with OPEC. "In this case, the reduction of oil production by 50 thousand barrels per day is still a small amount. By doing so, we are giving a signal to our partners that it is time to start to fulfill their obligations," he said.

"Many had doubts, whether OPEC or Russia will fulfill their part of obligations. Russia by its actions confirms its intention to fulfill its part of the agreement. I think this signal will have a positive impact on the oil price, which recently reduced to a threshold of $55 per barrel, and this news has provoked growth," Ivan Kapitonov added.

The expert noted that Russia can easily compensate this decline in oil production. "Recalling its partners that they also need to adhere to their commitments, Russia has reduced oil production by the amount, which it can play back sharply. It will also stimulate other exporters to implement the agreement more qualitatively," the associate professor of the Graduate School of Corporate Management of RANEPA expects.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, in turn, explained the decrease in production ahead of schedule with technical reasons. "For a number of companies it is much more profitable to withdraw unprofitable wells from the market, than wait for regulatory guidance from the President. Some companies just put the wells on the repair ahead of time - the wells, which are out of service for preventive maintenance in spring, provide about 150 thousand barrels of oil per day and consequently, Russia can fulfill half of its quota by a longer repair of these wells," he pointed out.

"Another 150 thousand barrels per day are produced by the wells, which are on the verge of profitability. For companies it is easier to decommission them and report on the reduction of production volumes. Therefore, those 50 thousand barrels per day reported by the Ministry of Energy, come either from repair or from unprofitable enterprises," Igor Yushkov added.

According to his forecasts, Russia will be able to make up the lack of confidence existing in the international market in terms of implementation of the agreement with OPEC. "The news of production cuts in Russia and Saudi Arabia are pushing everyone else to follow the agreement. It is always difficult to be the first to reduce the volume of production, because it is unclear whether others will do it. Russia was one of the first to reduce the production. After such news oil prices will gradually increase," the lecturer at the Financial University under the Government of the Russian Federation summed up.

Russia agreed to cut 300,000 barrels a day as part of the November 30 deal reached in Vienna setting the global oil production ceiling at 32.5 million barrels per day. Iran is allowed to raise its output to the pre-sanction of 3.975 million barrels a day. Other countries outside of OPEC will cut their production by 258 thousand barrels per day in total. This includes: Azerbaijan - 35 thousand barrels, Kazakhstan - 20 thousand barrels, Mexico - 100 thousand barrels, Oman - 45 thousand barrels, Malaysia - 20 thousand barrels, Equatorial Guinea - 12 thousand barrels, Bahrain - 10 thousand barrels, South Sudan - 8 thousand barrels, Sudan and Brunei - 4 thousand barrels each.