About That "Oil Freeze": Russian Crude Production Sets New Post-Soviet Record In February
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 stubbornly refused to decline materially, or will the modest pickup 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.