OPEC Unfazed As Russia Cuts Production But Boosts Exports

OPEC is not taking issue with Russia’s increased oil exports for the month of January, according to the bloc’s Secretary-General Mohammed Barkindo, who expressed confidence in Moscow’s commitment to the oil-price end game.

"I am in regular contact with Russia and I remain confident that at the end of the day we will see full and timely implementation of the obligation [to cut oil production],” he said, answering a question regarding the issue at a press conference.

“Russia is a leading producer, a leading participant in this new broad platform of twenty four producing countries and parameters that we look at are not just exports. We are looking at production in total. We are monitoring production, not exports. Export is the subset of the quantum of production of participating countries.”

Russia has reportedly cut production; however, oil exports were up in January, and the country is planning on further boosting exports of its medium sour grade Urals crude. Exports via the Russian Transneft pipeline system in January were up 114,000 barrels per day from December’s levels.

Russia pledged to gradually reduce production by 300,000 bpd between January and June. According to the Russian Energy Ministry website, the country reduced its oil production by 117,000 bpd in January.

But Moscow is offsetting the cuts by increasing exports by 5 percent in the first quarter of 2017, compared to the fourth quarter of 2016.

Related: Oil Leaps Higher As OPEC Pushes For 100% Compliance

Even with the pledged cuts by OPEC and 11 non-OPEC nations, the initial period of the deal until June may not be enough to draw down the global oversupply. Reports emerged last week that OPEC appears to be prepared to extend the production-cut agreement and also increase the cuts, if inventories fail to drop to a specified level.

The 90 percent compliance rate observed last month was largely due to cuts by Saudi Arabia and its closest Gulf allies – suggesting to many analysts that other major producers could be on the verge of ramping up output just as prices begin to improve. Increased demand in summer months would provide a good cover for countries following this line of thought.

By Zainab Calcuttawala for Oilprice.com

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