About That "Oil Freeze": Russian Crude Production Sets New Post-Soviet Record In February

Tyler Durden's picture

As noted earlier, among the catalysts for the overnight leg higher in oil was a statement by Venezuelan Oil Minister Eulogio Del Pino who triggered the headline-scanning algos yesterday when he said, during a television broadcast on TeleSur, that oil producing countries were discussing a March meeting site (which apparently is sufficient to instill confidence in future cuts), and that Venezuela, Russia, Qatar and Saudi Arabia are planning to meet in July. He added that "There’s no capacity to continue putting oil on the market. If this situation continues we’ll have a collapse in oil prices" which is quite clear to everyone and certainly the Saudi oil-minister who a week ago explicitly said that Saudi Arabia would not cut production.

Recall that Ali Al-Naimi threw down the gauntlet at IHS CERAWeek by ruling out production cuts and challenging many of those very same leaders in Houston to "lower costs, borrow money or liquidate."

Which brings us to the topic of the production freeze, the catalyst that pushed oil off its 13 year low hit early last week.

What is surprising here is that according to calculations by Bloomberg's Julian Lee, released moments ago, Russian crude and condensate production just set new post-Soviet daily record of 10.92m bbl yesterday.

He notes that the monthly estimate is based on daily data from Energy Ministry’s CDU-TEK for 1st 25 days, and applies the average rate over last week for final 4 days. And since this compares with a revised 10.91m b/d for January, it means that Russia took the production "freeze" seriously: by freezing at a new record high level of production.

He adds that total January output was revised up by 32k b/d, and also notes that February output has risen by 205k b/d compared to a year ago.

Lee quotes Russian DPM Arkady Dvorkovich who said that "no extra measures needed for Russian companies to meet proposed output-freeze deal." Well sure - since Russia can't produce more - even if it wanted to as it already is at capacity - there is no downside to making a "freeze" pledge.

Which means that the only marginal wildcard is what shale producers will do: will the recent production cuts by the likes of such shale titans Whiting and Continental lead to a real and sustainable decline in US oil production, a metric which has stubborning refused to decline materially, or will the modest pick up in prices lead to a resumption of production.

One answer, even if largely meaningless, will come later today when Baker Hughes will release its latest rig count, however as explained previously, the rig count has become a largely irrelevant statistic thanks to a efficiency improvements by existing wells.

In any case, we expect many more spurious headlines, mostly out of Venezuela for whom the day of reckoning draws ever closer should oil fail to rebound sustainable from current prices.

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Cognitive Dissonance's picture

Even though we lose money on each barrel, we'll make it up on volume.

<Some might call this eating your seed corn. Others might call it desperation.>

The fact is's picture

Russia doesn't lose a shit, their costs are around 10-20$/bl. Suckers are Canada, US, Venezuela and North Sea in Europe.

Cognitive Dissonance's picture

Compared to $50-$60 or more per barrel, they certainly are losing money. And eventually the well runs dry. Why sell for $30 when you could stop and wait for $50?

Because you can't stop. Thus you are losing money even when you are making money on the margin.

knukles's picture

Not an "economic" but a geo-political decision.  Another expenditure of young men and national treasure.

Winston Churchill's picture

Exactly, its wartime, and peacetime rules no longer apply.

Just be glad the're only lobbing barrels of oil for now.

MalteseFalcon's picture

Everybody out there who thought Russia was out of oil in 2007, raise your hands.

Raise your hand, little Flakmeister!!

Carl Spackler's picture

#The fact is...

Russia is getting pounded, and the Russian economy is getting hammered. This is the Saudi strategy.

When Brent Crude was at $75/bbl, oil and gas revenu made up 60% of the Russian economy.  South of $30/bbl, there is no money to pay for everyone else because the graft and corruption payments that keeps Putin in power must be made first.

The writing is on the wall, Russia is trying to borrow $3 billion by issuing junk bonds in the global capital markets because they are broke.

All they can do is try to produce more to generate additional, albeit minimal, revenue.

The Chinese are sooooo happy.

malek's picture

 Russia is trying to borrow $3 billion ...after they borrowed nothing in 2014 and 2015.

How come you don't touch on the massive deficits of the US, or Saudi Arabia?

_ConanTheLibertarian_'s picture

losing money not equals making less profit

Arnold's picture

"How to make a small fortune."


--Old racing adage


(start with a large one.)


The fact is's picture

And compared to $1000 they lose a fortune. Why stop when you can wait for your dead enemy swim along?

BorisTheBlade's picture

What happens is a price war for global oil market. If you stop and wait for the price to recover, you lose not just volume and hence revenue in absolute terms, you will also lose a market share. So, when you need to rack up the volume upon price restoration you won't be able to do so without a considerable investment, which will be unlikely given your historic performance.

The fact that Russia never pegged its currency to USD gives an enormous flexibility in that regard, as Rouble devaluation supressed RUR denominated costs and hence allowed for profitability with lower oil prices.

What happens next is anybody's guess, but the one that survives, be it Saudi, Russia, US shale, Canada tar sands, Venezuela, will benefit greatly as the market will be divided among fewer players. Whoever blinks first, loses the most.

Government needs you to pay taxes's picture

Whiting and Continental have got it wrong.  They should be trying to expand employment, production and most importantly, net debt.  And writing lots of derivatives.  So when it's time to die,the anticipated financial explosion is large enough to warrant taxpayer bailout/TBTF status.

1st Amendment's picture

"And writing lots of derivatives"

Virtually any O&G company that hedged has made money on those hedges.  THose derivatives are the reason many are still alive (for now).

BlindMonkey's picture

I had read, here on ZH, that last of the hedges had expired in Oct.  


In the words of Mavin the Martian "Where is the Kaboom?  There was supposed to be an earth shattering kaboom!"



The Black Bishop's picture

Russia pays its production cost in rubels, yet get payment for oil in USD, Euro or other foreign currency. So when the rubel goes down, so does the production cost. The real inflation is for imported goods. Domestic made products based on domestic raw material does not necessarily increase in price.


So the entire "Russia is loosing money" bullshit is just that....bullshit. The Russians are laughing their ass off at the US/Saudi "strategy".

commie's picture

Russia has used a figure of $50 a barrel in its budget. If they are selling for 10/20,they are in deep shit. 

Blankone's picture

Oh sure.  And when the rubel goes to zero everything will be free, right?


Took Red Pill's picture

Yes, Russia could be doing this to hurt the West.

roddy6667's picture

Crushing the shale oil boys.

silverer's picture

Sure. Just remember who drew first blood.

knukles's picture

Just goes to show ya' can't trust those rat ass commie pinkos.  Good thing we got Hill'ray.
Once a commie always a commie.  Goes for that Sandals guy from Vermont, too.

NoDebt's picture

I'm opening a store on the boardwalk this year.  I'm calling it "Bernie's Sandals".  The kids love this guy. 

(Oh, like your business startup idea is so much better??)

Bangin7GramRocks's picture

How about Sanders Socialist Sex Store? Free blowjobs if everyone unites as one to mop the jizz puddles from the floor each night. Forward!

datura's picture

Most Russians are not "commies" anymore. And, as someone below notes about China, it seems that it is now USA who is becoming more "socialist-inclined" than everyone else. 

  You can watch an interesting video, where Putin explains his opinion on this issue, something along the line of: "Oh, that...of course I believed in communism when I was young, but as I grew older, I realized that it is a fairytale, a dangerous fairytale."  https://www.youtube.com/watch?v=lIoEwESh320

silverer's picture

Glad you mentioned this. I ended up with about 7 Russians as warehouse neighbors, five guys and a couple of good looking girls. These guys worked hard in their marketing business and earned my respect. I got to like them a lot. Believe me, they get it. It was funny, because before the second election, they were telling me "don't vote for Obama". I laughed. They asked me why are we going toward a system that doesn't work? I told them because most Americans are dumb asses, and that's why they will do so well here in the US.

de3de8's picture

Some might call it covering fixed costs = survival

open-range's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.wallstreet34.com

Bangin7GramRocks's picture

This horrible news should be good for a 15% pop today. I guess? I dunno? Whatever? Huh?

silverer's picture

It's just one way to say "thank you" to John Kerry, for stepping in front of their 2B bond issuance.

Father Thyme's picture
Father Thyme (not verified) Feb 26, 2016 8:09 AM

FREEEEEEEEEEEZE! - Sheriff Rosco P. Coltrane

beijing expat's picture

They are trying to Bankrupt KSA and cause massive losses in shale thereby collapsing western finance. . Do the math. It's cheaper than war.

Blankone's picture

Shale oil is not that big a component to cause any collapse.  Local issues, bankrupt companies etc.

Monetas's picture
Monetas (not verified) Feb 26, 2016 8:14 AM

Market forces .... stronger than South American socialists, Islamic extremists, Chinese communists, Russian oligarchs .... even Zionists ?  

roddy6667's picture

Where do you find these Chinese communists. I live in China. Even the Party members are all full tilt capitalists. Over regulated (socialist) America is losing this battle.

- - - - - -'s picture
- - - - - - (not verified) Feb 26, 2016 8:27 AM

i heared they store the oil in tanks hidden under the earth and below the sea

iran definitely does. means other do it too


the price for oil will raise once again in future

would be smart to buy it for free and store it somewhere unregistered in masses

monk27's picture

...Tanks hidden below the sea... Really ? Oil is lighter than water, or so they used to reach in school. Nice try, Einstein !

- - - - - -'s picture
- - - - - - (not verified) monk27 Feb 26, 2016 10:43 AM

pffffffffff  us-spy satellites took photos with all the oil tanks being visible




keep nibbling on you mamas tits you honk




i just googled it and found an zh-article!!!!!!!!!!!!!!!!!!!!!!

didnt know that zh already covered the story


50 million barrels is just what they discovered - i bet there is much much more


usa and others are doing the same thing too

why should for example japan or south korea not store free oil unregisterd?







this is the fault of alex jones and his shit followers, that zh became a such a shit site

guys please go back wo "beforeitsnews.com" and infowars.

you guys are stupid leeches without a brain nor undrestanding how the world works

paradox i and others get banned every one or two months, while cabbage heads like
monk27 accumulate in masses

monk27's picture

You are a complete moron ! Despite your ridiculous conniption, oil is still lighter than water... LOL !!!

Your article talks about Iranian oil stored "at sea" not "below", you dumbass. Even the title of that chart reads "Iranian Floating Oil Storage". And it's NOT hidden at all. How exactly dow you "hide" a 280 meters long tanker ? Boy, are we fucked as a country...

Pumpkin's picture

Gas would be 50¢ if not for this 'freeze'.  (BTW, try and find the cent sign on your keyboard)

Kina's picture

Sell Su 34s instead.

Catullus's picture

I learned this week about zipper fracking. Wow. Amazing stuff. As if the lower energy price doesn't stop the innovation or something.