Russia's crude oil production in April exceeded the quota due to technical reasons. Citi believes that further OPEC+ production cuts are unlikely, and oil prices are expected to fall in the second half of the year.
Russia's Ministry of Energy said on Thursday that Russia's crude oil production in April exceeded its quota and will soon submit a compensatory production reduction plan to OPEC.
The Russian Ministry of Energy said in a statement on its official Telegram account that “the excess production was due to technical reasons,” adding that Russia remains committed to voluntarily reducing production under the current OPEC+ agreement.
The department said Russia would soon “submit a compensatory production reduction plan to the OPEC Secretariat to make up for minor deviations from voluntary production reduction targets,” but did not provide further details.
OPEC+ has been implementing a plan to cut production by around 2 million barrels per day this year to avoid oversupply and support oil prices.
Although some member states, such as Saudi Arabia and Kuwait, quickly fulfilled their promises to cut production, other member states, such as Iraq and Kazakhstan, procrastinated and exceeded their quotas in previous rounds of production cuts. Both countries have previously promised to cut production on a compensatory basis this year.
Russia is the only OPEC+ member to allocate production cuts to the production and export of crude oil and refined oil products. In April, Russia promised to cut production by another 350,000 barrels on top of the 500,000 barrels per day announced in February 2023. This means that the country's daily production target for April is 9.099 million barrels.
However, according to Bloomberg's calculations from the Russian Ministry of Energy, the country's actual oil production is about 9.418 million barrels per day.
Russia has promised to increase total production cuts to 900,000 barrels and 971,000 barrels per day in May and June, respectively. If the production reduction plan is fully implemented, then Russia's total production reduction in the second quarter will be roughly in line with Saudi Arabia.
Russia's announcement comes as OPEC+ will meet in less than two weeks in Vienna to discuss the future of its production restrictions. The current production reduction measures will continue until the first half of this year. Outsiders generally expect that this coalition of 22 countries will extend production reduction measures until the second half of this year.
Citigroup Research also said in a Wednesday report that the agency continues to expect OPEC+ to maintain its production reduction policy in the third quarter of this year.
The report added: “Further production cuts may be good news, but in our opinion, this possibility is still very low.”
Citi also said that its oil price forecast shows that the average price of Brent crude oil will continue to remain at $86 in the second quarter of 2024, but it will drop to $70 in the second half of the year and $60 in 2025.
The report points out that in the next few months, the geopolitical landscape, Ukrainian drone attacks, summer heat, and hurricanes affecting refinery operations will all pose an upward risk to oil prices before mid-year.
However, “given that we believe fundamentals are gradually weakening, we continue to seek to sell at high prices, or tend to decline in oil prices at the end of 2024 or mid to late 2025.” It added.
Oil prices fell more than 1% on Wednesday, falling for the third day in a row, as Federal Reserve officials said interest rate cuts might be delayed due to continued inflation, which once again raised concerns about oil demand.
Earlier this month, Citigroup Research predicted that oil prices will fall in 2024. Brent crude oil futures are expected to reach 86 US dollars per barrel in the second quarter of 2024 and 74 US dollars per barrel in the third quarter.