For the first week of June, Russia, the world's largest oil producer, exceeded the amount it agreed to produce as part of the January 2017, OPEC/non-OPEC supply cut deal.
For the first week of June, Russia produced some 11.1 million barrels per day (bpd), far exceeding production limits outlined in the deal, Interfax news agency said on Saturday, citing a source familiar with the matter.
As part of the oil production cut, Russia agreed to trim its production by 300,000 bpd from 11.247 million bpd. The output cut deal called for its members to remove some 1.8 million bpd of oil from global markets.
That deal was orchestrated to stop the bloodletting in global oil markets at the time due to a ramp up in U.S. shale production and Saudi Arabia's late 2014 strategy of trying to drive U.S. shale producers out of business by opening the production flood gates and sending prices to multi-year lows.
However, the Saudi’s plan backfired. Global oil prices tumbled from more than $100 per barrel in mid-2014 to under $30 per barrel by the start of January 2016, throwing global markets into a historic supply overhang, and causing financial chaos for the Saudis who had to start issuing international bonds to offset record budget deficits - a development that is still ongoing as the Kingdom shores up its finances from that low oil price period.
Now that OECD oil inventory levels have reached the OPEC/non-OPEC members’ goal of five-year averages, there is talk and speculation among not only media but oil producing countries asking if it’s time to ramp up production. Also, geopolitical factors are coming into play as renewed U.S. sanctions against Iran will remove as many as 500,000 bpd from global markets, perhaps more according to other forecasts. In addition, OPEC member Venezuela's oil production is coming apart at the seams, also removing more barrels from the market.
Moreover, the production overage the first week in June could indicate Russia’s strategic thinking that it’s time to increase production.
Alexander Dyukov, head of Russian energy firm Gazprom said on Saturday that his company is ready to hike crude oil production if the global deal on oil production cuts is modified.
“It is obvious now that the (production) quotas should be revised, the quotas should be increased, this will be beneficial both for producers and consumers,” Dyukov said after an annual general meeting.
“We believe that the time has come that it makes sense to keep the deal in place but be more flexible on quotas,” Dyukov said.
Saudi Arabia, for its part, is also poised to increase oil output amid reports that President Trump put pressure on The Saudis to reign in higher oil prices that hit the $80 mark last month.
A perfect storm
Saudi Arabia, which has...