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"I Know Of No One Who Predicted This": Russian Oil Production Hits Record As Saudi Gambit Fails
In late October, we noted that for the second time this year, Russia overtook Saudi Arabia as the biggest exporter of crude to China.
Russia also took the top spot in May, marking the first time in history that Moscow beat out Riyadh when it comes to crude exports to Beijing. “Moscow is wrestling with crippling Western economic sanctions and building closer ties with Beijing is key to mitigating the pain,” we said in October, on the way to explaining that closer ties between Russia and China as it relates to energy are part and parcel of a burgeoning relationship between the two countries who have voted together on the Security Council on matters of geopolitical significance. Here's a look at the longer-term trend:
You may also recall that Gazprom Neft (which is the number three oil producer in Russia) began settling all sales to China in yuan starting in January. This, we said, is yet another sign of the petrodollar’s imminent demise.
On Monday, we learn that for the third time in 2015, Russia has once again bested the Saudis for the top spot on China’s crude suppliers list. “Russia overtook Saudi Arabia for the third time this year in November as China's largest crude oil supplier,” Reuters writes, adding that “China brought in about 949,925 barrels per day (bpd) of Russian crude in November, compared with 886,950 bpd from Saudi Arabia.”
This is an annoyance for Riyadh. China was the world's second-largest oil consumer in 2014 and closer ties between Moscow and Beijing not only represent a threat in terms of crude revenue, but also in terms of geopolitics as the last thing the Saudis need is for Xi to begin poking around militarily in the Arabian Peninsula on behalf of Moscow and Tehran.

As we documented in "Saudis Poke The Russian Bear, Start Oil War In Eastern Europe," Riyadh has begun to encroach on Moscow's markets in Poland. Here's what Bloomberg wrote back in October:
Poland has long been a client of Russian oil companies. Last year, about three-quarters of its fuel imports came from Russia, with the rest from Kazakhstan and European countries. Poland, however, is at the center of efforts to reduce the European Union's dependence on Russian energy.
A new and reliable supplier is a godsend. As for the Saudis, they need to expand outside Asia where demand is falling.
This could turn into a more active shoving match between the world's two biggest oil exporters, which already are at odds over the Syrian conflict.
Indeed, one could plausibly argue that one of the reasons the Saudis moved to artificially suppress prices last year was to sqeeze Putin and ultimately force The Kremlin to give up its support for Assad. As The New York Times put it, a dramatic decline in crude prices has certain "ancillary diplomatic benefits."
Unfortunately for Riyadh, the strategy hasn't worked. In fact, it's backfired in more ways than one.
First, Saudi Arabia is facing a fiscal crisis as Riyadh's budget deficit balloons to 20% of GDP, forcing the kingdom to tap the debt market in order to offset the SAMA burn.
Second, Putin not only refused to give up his support for the government in Damascus, he actually doubled down by sending the Russian air force to Latakia. Meanwhile, Russia continued to pump even more oil, and as Bloomberg reports, Moscow is now producing at "the fastest pace since the collapse of the Soviet Union."
"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. Even pressured by plunging prices, as well as U.S. and European Union sanctions that cut access to much foreign financing and technology, Russian companies have managed to squeeze more crude out of some of the country’s oldest fields," Bloomberg writes, before noting that "Bashneft and other Russian companies working fields in the Volga River basin -- some of the first to be discovered in Russia early in the last century -- are benefiting from Soviet inefficiency as [the old motto was]: 'whatever we don’t produce will be left for our children.'"
For analysts, Russia's resiliency has come as a surprise. “I know of no one who had predicted that Russian production would rise in 2015, let alone to new record levels,” Edward Morse, Citigroup’s global head of commodities research said.

As for what it would take to curtail production, Mikhail Stavskiy, head of upstream at Bashneft PJSC which has been "the biggest single contributor to increased crude output this year," says he doesn't know. “I don’t know what the oil price would have to fall to for things to change dramatically. We’ve been through $9 a barrel and production continued, so if something like that happens, we know what to do.”
Indeed, thanks to the low cost of extracting crude from Russia's oil fields in West Siberia and the devaluation of the ruble, production costs are rock bottom:

But not everyone agrees that this is sustainable. Some say efforts to improve efficiency have run their course and with financing for exploration scarce, further gains may be hard to come by. Interestingly, Bloomberg also notes that because Moscow takes "nearly everything above $30-$40 a barrel" on exports, producers won't feel the impact of low prices until crude falls substantially below those levels.
“Russia will maintain its current oil production levels within the bandwidth of 525 million to 533 million tons next year, as the federal government’s budget is set on such production levels,” Stratfor's Lauren Goodrich says, presaging more of the same in 2016.
The takeaway here is that the Saudi gambit failed to wrench market share away from the Russians and between the conflict in Syria, Moscow's closer ties with Beijing, and Riyadh's move to antagonize The Kremlin by encroaching on Russia's eastern European market share, one shouldn't expect Putin to back down any time soon. In short, if John Kerry and Riyadh did in fact plan to bankrupt the Russians by tanking crude prices, the effort was a miserable failure that resulted not only in a 20% fiscal deficit for the Saudis, but also in the destruction of American jobs in the oil patch.
We close with a bit of humor from Deputy Energy Minister Kirill Molodtsov:
“I will tell you when Russian companies are for sure going to decrease production -- when oil costs $0."
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+1 for describing the Federal government as completely unhinged.
That's because they don't know where to hinge themselves.
Trapdoor on a scaffold has a hinge that they can try hinging on as we pull the lever. We will even give them a rop around their necks for health and safety purposes. Can't have bodies falling on the innocent citizens below, or a cockroach, rat, mice.
Actually we just don't want their feet to touch the ground.
No doubt, they both have the same parent company afterall.
See, even though you used italics I was still able to downvote you.
I wonder if Russian people think the western populations are idiots for not paying attention to all the thieving been done against them.
Isn't it about time that Angolans "Learned Russian as a second language"?
What's their second language now, besides "Dollahs"?
Well Kirk, dos santos went to a Russian University and married a Russian as 2nd wife and whose daughter benefits from several state assets, including the telecommunications.
During the 30 year civil war a certain Lev Leviev ( a Russian Jew ) dropped food into the jungle for the Presidents soldiers in the fight against Unita. He was rewarded with his pick of the diamond deposits, Alrosa, the company, i believe, competing with de beers.
Remember Cuba/Russia backed Angola against the Sud afrikanners & zato.
"Remember Cuba/Russia backed Angola against the Sud afrikanners & zato."
yes, I do. It was the dirty little war that the West ignored, and the average American on the street never knew existed. Talk to ex-SAF forces about what really happened in there. It was very UGLY. And South Africa would have pushed the Cubans out completely, but they were told to back off. Wanna guess who became alarmed at the rapid successes of the South African forces and told them to pull back?
Everybody was after Dollahs until they learnt to pronounce Renminbi.
I remember a TV interview with an Angolan big shot some years ago. He said that after their civil war they were desparate for investment and cooperation. Nobody wanted anything to do with them, he said, except for China. So it's probably not Russian that you may hear in Angola but Mandarin. But I haven't updated my knowledge for a while, because Angola wasn't on the forefront of my thoughts.
Let the oil wars commence
I think the oil wars are over and Russia won. Can't wait for Lukoil to come to Ohio.
Pump it, Pootin.
pumpin obooby, israel and oil. all in a days work for Vlad.
arabs bow down in prayer to allah 16 times a day, russian play chess
No, drink Vodka.
They do both - surprise! It's like chewing gum and walking at the same time.
When the sanctions against Russia were first talked about, the German business community warned not to do it because it would weld Russia and China closer together, a situation that would be impossible to reverse. It's happened, just as predicted. The EU will be the loser, but maybe that was a collateral benefit, because some people do not like a strong EU.
do you want to say you like muslims? you should not make your comment look like muslims are better than anything in the world
huh?
Keep digging...
The U.S is run by Lawyers.....with Law degrees from supposed Elite Schools....None with any commonsense.....Lawyers are the main problem...
--> “I know of no one who had predicted that Russian production would rise in 2015, let alone to new record levels,” Edward Morse, Citigroup’s global head...
Are you are saying the bankers who couldn't predict a banking collapse in 2008, also couldn't predict Russian oil production?
I am shocked, just shocked, to learn Citibank doesn't know what is going on.
The other day a ZH article tried to claim oil prices had bottomed as China didn't lower prices this time.I thought the causal relationship to be weak at the time. Now we have the explanation. China is supporting Russia financially. It's a proxy war for China too.
I did. Months ago. Putin floods the market and the Saudis play like they're trying to wreck the US capacity to produce because they want to control prices and markets, but they need the USA bootjacks to get rid of Assad so they and Qatar have a market for their crude and lng that Russia currently pwns. Europe. Dummies must realize Putin sells in rubles and his buyers don't have to purchase an extremely overvalued fossil dollar.
Such bullshit. Putin could sell in cat shit. It doesn't matter. Oil is denominated in USD and somewhere somebody is going to have to convert USD into cat shit in spot USD to transact the purchase.
russia/china compliment each other strategically and will likely dominate much of world withing 20 years.
Stupid Fucking Arabs.
Even with fancy oxbridge educations they are as dumb as a camel's ass. Saudis are in way over their heads, they should stick to praying 5 times a day.
What is the actual oil cut from Gahwar at this point? Something like 4%?? The rest is fucking seawater...
Idiots.
THe most interesting thing about this was the chart showing how America went from 7 to almost 14 - basically doubled production! That's amazing.
It is proven by data that Russia economy structure can be compared to a “gas station”. Just look at this graph that shows correlation between price of oil and Ruble.
http://www.dailypfennig.com/wp-content/uploads/2015/10/15ACQ0002-39-figure1-sm.jpg
Russia economy is undeveloped as other “gas station” economies and is vulnerable to low oil prices. So when we think about perspective for Russia economy – we must think of perspective for oil prices in the market for short term and long term. In short term oil prices will probably stay low and won’t come back to 100 USD per barrel. But in long run “gas station” economies such as Russia are doomed because of new guy in town.
Check this out:
Germany just switched on a revolutionary nuclear fusion machine
“Nuclear fusion occurs when atoms fuse together at incredibly high temperatures and generate energy, and the reason scientists are so excited about it is because it has the potential to produce an almost-unlimited supply of energy from little more than salt water. This is the same process that's fuelled our Sun for the past 4.5 billion years, and is predicted to continue doing so for another 4 billion years.
Unlike nuclear fission, which powers today's nuclear power plants, nuclear fusion also doesn't produce any radioactive waste, and is a whole lot safer.”
After such energy is implemented there is no need for gas & oil. After it – „gas station” economies collapses. Maybe Russia will be able to exchange it's gas & oil for some food packages to survive.
If you think - WOW! - that can't happen! You are mistaken - we have many changes in our lives in future:
Ray Kurzweil: The accelerating power of technology
Also worth to know that so far Russia (with its sanctions on their own people that bans them from Western products) I is just as successful to substitute EU, US, Turkey, etc. products with its own as North Korea.
“Back in Russia, a Bosch-Siemens factory producing washing machines and refrigerators closed down—it could not operate and continue to pay hundreds of its employees without Turkish-made parts. ”
Russia’s Central Bank Declares Shortage of Banned Food Items
“Russian food producers failed to meet market requirements in most categories, according to a report published Friday by the Central Bank, the Kommersant newspaper reported.
"Although the percentage of Russian products has increased, the total market volume that includes both domestic and imported products, has decreased," the report says.
The shortages have led to soaring food prices with prices of key products rising sharply — cereals and beans prices showed the biggest increase (49.2 percent), a government analytical center revealed in a "Food Embargo" bulletin published this August.”
No Turkish fabric to make anti-Turkish T-shirts, say Russian designers
“The production of T-shirts carrying anti-Turkish slogans in Russia has been delayed by restrictions on fabric imports from Turkey, local media reported this week.”
Russia imports everything, outside of guns and oil, so the ruble's crash, has a greater impact then you would think. Also Russia, has been proven to be unreliable, with Putin's gas station economy, he can cut you off, raise your prices, or do whatever he wants. Places like the Baltic understood this, so they started to diversify. They now get their oil, and Natural gas by tanker. The electrical grid is now with Europe, Putin has lost this market, for good, and its just the beginning. With multiple terminals being built in other countries, there is even talk of interconnecting pipelines that can push right into Ukraine. China pays below spot for the Russian oil, and they are not as friendly, as they make them out to be. Putin is the one that has gambled and lost, Europe no longer wants to play his games, and will look else where. Not only have the prices fallen, but his market share, is quickly drying up.
Shooting from the hip, these saudi, wahabi pieces of shit are the equivalent of the cockroach without the benefit of being smaller and faster than humans, as well as procreating way too much.
The entire moon-loving, book banging murderous tycoon of white robe wearing fools ought to be wiped off the face of the planet because they are violent, hedonistic parasites. This includes their handlers, the loving and omnicient, kicked out of half the countries on the plantet... fools who worship something called Jehova, or Yahwey. Because you cannot legitimize the murder and filth these people have spread on some kind of Sky God to me.
Are you kidding?
Oil is in the Earth as deep as you can go it is there. These people think they have some control over the earth and it's precious bodily fluids? What the fuck? And so many people think that that shit making your car work is dead dinosaurs... Or that the carbon emitted is going to change the balance in a closed system because it gets exploded at 3000rpm... Really?
If I could smack the beard and hat and gold watch and sunglasses off of every oil selling, harem fucking asshole with a book about a bigger asshole devil, well, well I'd be a bit happier. The question is whether you morons are going to call all that beard hair a natural resource. Wake the fuck up.
Happy Kwanza! Light a candle for me you fucks!
Let's see...
The STUPID Russians are selling even MORE of their real and precious oil
for their enemy's unconstitutional and fraudulent Federal Reserve Notes (aka US dollars that the Americans create effortlessly out of thin air with a few keystrokes on their banks' computers)
which finances the war that their enemy, the Americans and their European collaborators, wages against Russia
and
This is supposed to be a good thing?
All the Russians are good for is Erdogan's dick up their collective asses.
Russians
are
stupid.
P.S. and their planes or technology amounts to nada. Even a lowly Turkish F-16 can shoot down a Russian jet with an even more pedestrian short-range heat-seeking missile, which is not much better than a MANPAD that ISIS possesses.
Sounds like those "crippling Western economic sanctions" exist only in the minds of Western writers.
"In short, if John Kerry and Riyadh did in fact plan to bankrupt the Russians by tanking crude prices, the effort was a miserable failure that resulted not only in a 20% fiscal deficit for the Saudis, but also in the destruction of American jobs in the oil patch."
See, the price of crude has all been politically motivated by the moron in the White House. First bow to the Saudi king and push "Green" energy on the back of higher crude prices, then "pivot" and dump the crude price (tell the house of Saud what to do) to beat his world view of his political enemies. Russia, Venezuela and as a hat trick, bankrupting the US fracking industry. This guy Obama is all politics and all bad. He doesn't care how much he destroys this country. Toss coal in there to destroy evil carbon. Simple right? Occams razor and all.