Russia can boost oil production quickly if OPEC+ agrees

Russia will be able to keep pace with any easing of OPEC+ production cuts in both the short and medium term, according to analysts including Bank of America Corp. and Fitch Ratings Inc., Report informs via Bloomberg.

As the cartel discusses whether to boost output further in August, there has been renewed speculation about whether record production cuts could have permanently damaged Russian fields. While some old and inefficient wells have been shut for good in the past year, the country has largely preserved its pre-pandemic capacity, according to a Bloomberg survey of six analysts.

Russia could boost output by about 700,000 barrels a day from current levels within six to 12 months, according to the average analyst estimate. That could return the country to just under the post-Soviet annual production record of 11.25 million barrels a day reached in 2019.

“The massive freeze of production wells did not result in a significant reduction of output capacity, whiсh many feared would be the case,” said Dmitry Marinchenko, a senior director at Fitch.

The current agreement between the Organization of Petroleum Exporting Countries and its allies allows Russia to make a modest output boost in July, then keep the rest of its spare capacity idle until April 2022. At a meeting of the group on Thursday, Moscow may try to persuade the group to adjust that schedule and revive production more quickly.

If the cartel were to agree to add a further 500,000 barrels a day in August, Russia could easily add its share of about 125,000 barrels a day, according to analysts from Bank of America, Fitch, Wood & Co., Renaissance Capital and BCS Global Markets.

“Russian producers have repeatedly proven that they can add back idle production on very short notice,” said Ron Smith, senior oil and gas analyst at BCS Global Markets. “I think the market may be underestimating Russia’s ability to raise output.”

BCS estimates that Russia has spare capacity of about 950,000 barrels a day. That’s the most optimistic outlook among the analysts surveyed by Bloomberg, and others have smaller numbers because they anticipate lasting damage to the country’s fields.

Russia had to idle or shut down an unprecedented number of wells within a couple of months to comply with last year’s OPEC+ deal. Some of its older facilities, known as brownfields, have since struggled to recover, according to London-based consultant Energy Aspects Ltd.

“Some of the brownfield wells -- given their age and high water-cut -- may never come back to produce the same volume of oil,” Amrita Sen, chief oil analyst and co-founder of Energy Aspects, said in a note.

She sees Russia’s oil output capped at about 10.5 million barrels a day this summer -- about 30,000 above May levels. Production could tick higher in the autumn, but rise no higher than 11 million barrels a day next year, Sen said.