How Russia Outsmarted OPEC

Tyler Durden's picture

Submitted by Irina Slav via,

OPEC’s historical deal to cut production has been sealed, and oil prices have jumped as a result, comfortably above the $50 per barrel mark. According to Lukoil’s vice president, Leonid Fedun, the average price of crude in 2017 could reach US$60 a barrel, thanks in no small part to that agreement.

According to some observers, the effect won’t be so noticeable, and prices will continue to hover around US$50.

In any case, Russia will certainly benefit from the cut agreement, as the chief of VTB, one of the country’s largest banks, said recently. Andrey Kostin said that the decision to cut production will, on the one hand, prop up international prices, which of course is good news for Russia, and on the other hand, it will benefit the ruble, an outcome which was also to be expected given the central place crude oil occupies in Russia’s export mix.

What’s perhaps more interesting is that Russia did not, in fact, obligate itself to cut from essential production. It surfaced last week that the country’s total output had reached a new post-Soviet record of over 11.2 million barrels per day. The precise figure, according to Deputy Energy Minister Kirill Molodtsov, was 11.231 million barrels, and it is from this production level that Russia will take off the 300,000 bpd it agreed to cut to help OPEC in its market rebalancing efforts.

Incidentally, Libya, which has been granted an exemption from the agreement, plans to ramp up its own output by 300,000 bpd by the end of 2016.

To compare, Saudi Arabia pumped 10.6 million bpd in November, and now has to cut 486,000 bpd from that figure. Its friends in the region, including Iraq, Kuwait, Qatar, and the UAE, will cut a combined 510,000 bpd from their output.Iran was actually allowed to increase its output by 107,000 bpd (based on secondary sources from October figures as reported by OPEC), which will bring its daily production close to the target of 4 million barrels of crude set earlier this year at 3.797 million bpd.

Russia will continue to produce crude at the rates it did when prices were lower than they are today - a level that still allowed its oil companies to turn a profit. They might not be too happy about the stronger ruble, as this would negatively affect production costs, but it’s uncertain exactly how big the ruble’s rally will turn out to be.

Russia’s 2017 draft budget had US$40 per barrel as a base scenario for oil prices, according to economist Natalia Orlova from Alfa banking group. Every US$1 above this level translates into around US$2 billion in budget revenues. The budget is currently being discussed.

The country’s budget deficit for 2016 was estimated at over 3 percent by PM Dmitry Medvedev earlier this year, in case oil fell below US$50 again and stayed there long enough. It didn’t, so the budget for the year could be 3 percent or less.

Saudi Arabia, on the other hand, has a deficit that is 20 percent of its GDP for this year despite massive spending cuts. So does Iraq. Kuwait’s deficit is 12 percent and UAE’s is 9 percent. And yet, these four countries will shoulder the bulk of the OPEC cut.

Russia, along with Iran, could turn into the big winner of the agreement, enjoying high output and higher prices, which would allow it to further expand its global market share. Unless, of course, OPEC lies, as former Saudi Oil Minister Ali al-Naimi plainly said at a media event for the promotion of his memoir. “Unfortunately,” he said, “we tend to cheat,” commenting on how OPEC handles its only tool of market rebalancing: production cuts.

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LawsofPhysics's picture

Is it really that hard to "outsmart" countries that treat their people the way most OPEC nations do?

Why doesn't my wife have her barka on?

For example, compare your average Russian women to the average women in OPEC countries...

Looney's picture

Speaking of “Why doesn't my wife have her burka on?”

Nearly 2,500 refugees from terrorism hotspots around the world are bound for the U.S. after being rejected by Australia, but not even top lawmakers can get answers about who they are.

In an unprecedented move, the U.S. State Department has classified details on refugees to be resettled in America via a secret deal made with Australia. The bi-lateral agreement, which Australian Prime Minister Malcolm Turnbull called a “one-off,” involves 2,465 people currently being held in Papua New Guinea and Nauru who will now be transferred onto U.S. soil.


Australia didn’t want their Kangaroos to be molested or raped by the Rapefugees.

So, they sent them to us, along with the recipe:

Throw a few muzzy-prawns on the barbie.

Season with salt and sun-dried dingo-shit.

Cook until charred.

Serve hot, with a cold Foster (It's Australian for beer!).

Looney   ;-)

manofthenorth's picture

Vlad will be laughing all the way to the bank.

Selling oil in record amounts, getting paid in record high Dollars and adding to Russia's gold holdings at bargain prices.

Eat shit and DIE Saudis.

Pinto Currency's picture

This Russia/OPEC talk is all just chatter.
There is a predictable consumber goods inflation wave underway.
Check the BCOM commodity index.
That's what nobody wants to talk about.
Forget OPEC, inventory builds, etc.

JRobby's picture

“we tend to cheat,”


Hohum's picture

ZH, you're wasting bytes.  OPEC is dead; this is just a show.  If these countries didn't cheat, output would decrease maybe 4%.  But they'll cheat.  Western drillers will drill at a loss as long as everyone gets paid enough and they can get financing.  Repeat, just a show.

Cluster_Frak's picture

surprised? Russia is fantastic at negotiations. Sand niggers stand no chance at a table with Russians.

equity_momo's picture

The best thing to happen to Russia was the oil price collapse of 08.  Before then , Putin was struggling to control the dual-passport holders and Moscow was on the same moral-decay trajectory as any Western city.  When the 2nd oil price collapse came last Summer , Russia was in a better mindset to deal with it.

Russia is battle hardened against a crisis. The West is not.  Yet we are dumb enough to try and cause one by poking the bear.    

Make me Leader of the West for 1 day :  In the morning we invade Saudi and take control of those oil fields. No need to pretend anything else - SA are a threat to the West and so the tanks roll in fullspeed.

                                                         In the afternoon we sit around the table with Russia and China and create a new global currency and trade deals with US-Russia-China as the 3 power brokers.  Iran are given a choice : play ball or follow Saudi Arabia. 

Europe gets to sit at the kids table and eat scraps until they can sort their own domestic shit out. 

LawsofPhysics's picture

Please seek public office immediately!

equity_momo's picture

The time is not right. There is no helping people who do not want to be helped.  

Once the crisis is obvious to a few more layers in society and that there is no turning back , then real change for the better can occur. There are positive signs with Brexit and EU splintering (and Hillary not winning counts too) but the cog-dis is still far too great in far too many people to stand up and be counted.

Theres still 60 million Americans who wanted or were too ignorant to understand that WW3 with Russia was incredibly likely under Clinton. Theres still almost 50% of the population of UK who think outsourcing their liberty to a communist cabal in Brussels is a good idea.  Until Cities fall upon very hard times this wont change. In short , people have too much to lose to really rock the boat.  The boat is fucked though , many will drown. Those that accept their new reality will then be in a position to be helped.


just the tip's picture

you george bush / dick cheney wannabes should be gadaffied.  always wanting to solve the problem by invading another ME country.  first KSA and then iran, and then who?  who next?  maybe invade libya all over again?  how about invading langley instead of KSA?  it would be more effective in the long term and would be the source of the problem.  and   save the truman stalin churchill visuals dividing up the world to the bond movies.

sinbad2's picture

So your cure involves stealing Saudi oil, how very American.

Goatboy's picture


In other words, they can still cheat each other at any time and "deal" is de facto a lie

MEFOBILLS's picture

Russia, along with Iran, could turn into the big winner of the agreement, enjoying high output and higher prices, which would allow it to further expand its global market share.



Russia's central bank still operates under Rothschild rules.  Dollars and Gold are held in reserves.  The Atlantacist contingent in Russia want's to keep it that way.  Putin has a significant fith column buried with Russia's goverment.

By collapsing Oil prices, and imposing sanctions - the West then prevents Russian access to dollar FX.  Low dollar FX, then restricts  Ruble emission from CB.  

Since the sanctions, Russia's economy has actually been helped.  They are becoming self sufficient (autarchy).  This then means Russia is moving away from an extraction economy dependent on selling minerals/oil, but instead making goods as prices.  When people make goods as prices, a middle class forms. People can buy and sell from each other.

Our (((friends))) are not as smart as they fancy themselves, the sanctions have boomeranged.

Russia is a continental country that has intelligent people, good land, and mineral resources.  They can make goods as prices, including first rate military gear.  

The middle eastern "sand" countries do NOT have the resources that Russia has, and thus must have extraction economy.  Russia is not under nearly as much pressure as Sand countries, to sell oil.

If you are from a sand country, are you going to be able to grow enough food?  Make cars and airplanes?  No way.  You don't have the right kid of land.

NoWayJose's picture

Who really knows how much ANY oil producing country actually produces? It is about as truthful as alumni at a 20 year high school reunion saying how much they earn.

BritBob's picture

Plenty of oil worth extracting from around the Falkland Islands.  Didn't Argentina claim the waters?  Nah, just another  mythical claim: Falkland Islands - Territorial Waters

P.K.Snosage's picture

It is all perhaps a little bit more complicated than this.  Iran agrees to a deal, at the behest of Russia; a deal that Russia needs vis a vis its economy, but one that will actually benefit the US shale industry, which had been and is a very vocal opponent of the Iran Nuclear deal.

Iran meanwhile gets hit with more sanctions and is in very grave danger of seeing the nuclear deal being revoked by Trump.  It is also in very grave danger of coming under attack once Mad Dog is on his perch, and there is also a possibility that it will come under attack from Israel.

Trump wants to cosy up to Russia, but also wants to protect the interests of US shale.  Russia is cosying up to Iran over Syria and the Middle East generally.  Iran is establishing closer ties with China, at a time when Trump is set to piss China off.

Trump is therefore in a significant and serious double bind: he cannot both be friends with Russia and the enemy of Iran.

Jethro's picture

Seems like a pretty task. The Saudis are used to an easy life for the past several decades. Russians are used to austerity. Saudis, and arabs in general, have been marrying their cousins for hundreds of years, and the Russians haven't.

Hannibal's picture
US Trying to Rescue Intelligence Officers from Eastern Aleppo City

BlueSulla's picture

So Russia pumps more oil, and gets paid less for it; sounds like someone trying to big-up their own failure.

I Feel a little Qeasy's picture

..'Saudi Arabia, on the other hand, has a deficit that is 20 percent of its GDP for this year despite massive spending cuts. So does Iraq. Kuwait’s deficit is 12 percent and UAE’s is 9 percent.'


There is your answer, government debt is increased in these countries, that is, the robbers get a bigger skim.