Why OPEC Should Worry About Russia’s Latest Oilfield

First oil from the field in the Yamal Peninsula has been sent via an oil pipeline, Rosneft said in a statement, adding that it hopes to deliver up 10 million tons of oil per year, or 200,000 bpd, from the field.

Rosneft has delayed the launch of the field due to Russia’s commitment to restrict oil production as part of the pact with OPEC to rebalance the market.

The start-up of the oilfield in the Arctic comes just a week before Russia and OPEC are scheduled to meet in Vienna next week to discuss how the OPEC+ group should proceed with their oil market-managing efforts next year.

The current crude production cut agreement expires in March 2020, and apprehension has started to build ahead of the OPEC+ meeting on December 5 and 6.

The market expects the group to come up with a decision next week—either to roll over the cuts, or to deepen them--otherwise analysts expect a sell-off in oil.

While OPEC’s de facto leader, Saudi Arabia, desperately needs higher oil prices ahead of Aramco’s IPO, Russian companies, including the biggest, Rosneft and Lukoil, have been criticizing the OPEC+ deal, arguing that the cuts give more market share to U.S. shale and hinder Russian firms’ production expansion plans. 

Russia has not expressed yet any official views on the production cuts, as it has done ahead of every OPEC+ meeting over the past two years. But Russian President Vladimir Putin said last week that Moscow and OPEC have “a common goal” to keep the oil market balanced, and that Russia would continue to cooperate with the cartel to keep the market stable.

Russian Energy Minister Alexander Novak said last week that Russia needs to discuss with its OPEC partners the exclusion of gas condensate from Russia’s cap under the pact, as condensate isn’t exported, while it is included in Russia’s oil production statistics.