Since Russian oil companies had to cut down on their daily oil production as the result of the so-called Vienna Accord signed in November 2016 by the OPEC and some non-OPEC producers led by Russia, those companies eventually lost a lot of profit, even though the production cuts seem to have had positive impact on the Russian budget. Apparently, the agreement was designed to reduce the oversupply and make oil prices grow to let the exporters gain more money as the result of higher oil prices in the global market.
According to Vygon Consulting, if the agreement is extended during the forthcoming OPEC summit in Vienna, chances are toil companies will see a further loss of profit, the amount of billions of dollars. This was stated in the report on the Russian oil industry published by the experts last Wednesday.
According to the report, there are 2 possible scenarios for Russia’s oil industry depending on the actual result of the forthcoming OPEC summit scheduled for May 25, 2017. It’s either extending the deal till March 2018 or rejecting the extension. According ot the agreement signed in 2016, the participants should have cut their oil production by 1,8 million barrels a day combined over the first half of 2017. Russian companies were responsible for cutting their oil production by 300K barrels a day. When the agreement took effect in January 2017, oil prices managed to grow slightly but never went above 60 dollars per barrel. Later on they went down again. Now they are only slightly above the levels seen before the agreement.
All the Russian oil companies had to join the deal. In January they collectively cut their oil production by 50K barrels a day. In April they cut it by 300K b/d. May’s production is reported to amount to 10,9million b/d.
A week ago, Russia and Saudi Arabia expressed their commitment to extending the deal for 9 more months, which means that Russian oil companies will have to practice austerity again. Experts seriously doubt that they are willingly going to make this step and are expected to resist the decision. If the deal is extended, the companies will have to lose even more money as they have to implement more production cuts even in new oil fields. Over time, this austerity may affect the entire Russian oil industry.
If the cartel and Russia-led non-OPEC oil nations quit the deal, the average Brent oil price is expected to stay around 48-50 dollars per barrel in 2017. Otherwise, the average price may go up to 55 dollars per barrel and higher in 2017 and 57 dollars per barrel in 2018.
