Record high post-Soviet crude oil production in Russia has weighed down crude prices Friday, particularly on Brent crude, which traded down about 2% at $56.16. West Texas Intermediate (WTI) traded down about 1% at $52.73, after dropping to an intra-day low of $52.05. In 1988 Russian production peaked at more than 11.4 million barrels a day.
The Russian energy ministry reported that the country produced 10.67 million barrels of oil per day in December and the country’s energy minister said Russia will not cut output this year and that he expects the price of crude to stabilize. He did not give an estimate of what the stabilized price would be. About half of Russia’s national revenue comes from energy sales.
Russia’s annual production totaled 10.58 million barrels a day, up 0.7% year-over-year, but annual exports fell 5% to around 1.43 billion barrels. Russia’s export monopoly company, Transneft, cited rising domestic demand and refinery runs as the reasons for the decline, according to a report at CNBC. Exports to China rose to 452,000 barrels a day, a year-over-year jump of 43%.
To make matters worse, natural gas production dropped by 4% in 2014, largely as a result of a pricing dispute with Ukraine, once the country’s second-largest customer.
While the production growth is impressive, domestic demand cannot replace the lost revenues from exports at prices nearer $100 a barrel than $60 a barrel. We wrote last week about what has to happen for Russia to avoid a recession in 2015. Higher oil production was not among the items we listed, and it still isn’t.
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