【MACRO Alert】Russia's oil production exceeds quota! Plans to submit compensatory production cut plan to OPEC!

The Russian Energy Ministry has stated that Russia's crude oil production in April exceeded the designated quota and they will submit a compensatory production cut plan to OPEC.

This news was conveyed through a statement released on the official Telegram account of the Russian Energy Ministry. The statement mentioned that the overproduction was due to technical reasons, and Russia will still voluntarily comply with the production cut targets under the OPEC+ agreement. Russia will soon submit a production cut plan to OPEC to offset the slight deviation caused by the overproduction, but no further details were disclosed.

OPEC+ member countries have been implementing a daily production cut plan of approximately 2 million barrels this year to avoid oversupply and support oil prices. While some member countries like Saudi Arabia and Kuwait have rapidly cut production, countries like Iraq and Kazakhstan have overproduced in the earlier rounds and have committed to compensatory cuts.

Russia is the only OPEC+ member country that allocates production cuts to both crude oil and refined oil production and exports. Its daily production target for April was 909.9 million barrels, but the actual production was 941.8 million barrels. Russia has committed to further expanding production cuts in May and June. If the production cut plan is fully implemented, Russia's total production cut in the second quarter will be comparable to that of Saudi Arabia. The next OPEC+ meeting will be held in Vienna to discuss the future of production constraints.

It is expected that the production cut measures will be extended into the second half of this year. Citigroup Research believes that OPEC+ may continue to maintain production cuts in the third quarter but sees a low likelihood of further cuts. They predict that the Brent crude oil price will remain at $86 in the second quarter of 2024, drop to $70 in the second half of the year, and further decrease to $60 in 2025.

Recent oil price fluctuations have been influenced by various factors, including geopolitical tensions, drone attacks in Ukraine, summer heat waves, and the impact of hurricanes on refinery operations. Despite the upside risks, Citigroup continues to advise selling at high levels due to soft fundamentals. Oil prices fell by more than 1% on Wednesday, mainly due to comments from Federal Reserve officials indicating a possible delay in interest rate cuts, sparking concerns about oil demand.

Citigroup had previously predicted a decline in oil prices for 2024, with Brent crude prices at $86 per barrel in the second quarter and $74 per barrel in the third quarter.