Record Oil Output From Russia Despite Low Prices

Here’s one for the “this was not supposed to happen, and nobody saw it coming” book. Bloomberg reports on the Siberian Surprise: Russian Oil Patch Just Keeps Pumping. 

 In the fight for market share among the world’s oil producers this year, Russia wasn’t supposed to be a contender.

But the world’s No. 3 producer has been pumping at the fastest pace since the collapse of the Soviet Union, adding to the flood on an already-swamped market and helping push prices to the lowest levels since 2009.

Russia’s unexpected oil bounty this year is the result not of a new Kremlin campaign but of dozens of modest productivity improvements across the sprawling sector. 

With a rise of 0.5 percent in the first nine months of 2015, Russia hasn’t boosted production as much as its larger rivals, the U.S. (up 1.3 percent) and Saudi Arabia (up 5.8 percent), according to Citigroup Inc. But having ignored OPEC’s calls earlier this year to join efforts to support prices by pumping less, Russia is keeping up with the cartel.

“I know of no one who had predicted that Russian production would rise in 2015, let alone to new record levels,” said Edward Morse, Citigroup’s global head of commodities research. As recently as April, not even the Russian government thought 2015 would break the record.

One side effect of falling oil prices — the 52 percent plunge in the ruble over the last two years — has helped Russian oil producers, chopping their costs in dollar terms since between 80 and 90 percent of their spending comes in rubles.

“I don’t know what the oil price would have to fall to for things to change dramatically,” Stavskiy said. “We’ve been through $9 a barrel and production continued, so if something like that happens, we know what to do.”

Relatively high taxes on oil have actually sheltered the industry from much of the impact of the drop in prices. The government takes nearly on crude exports everything above $30-$40 a barrel, so companies don’t feel much impact until prices fall below that.