Russia used stocks held in tanks at its oilfields to help boost crude production in June, three industry sources told Reuters, in a sign of supply flexibility as OPEC kingpin Saudi Arabia pushes other major producers to increase spare output capacity.
Russian oil production last month rose by around 100,000 barrels per day from May. From July 1-15, the country’s average oil output was 11.215 million bpd, an increase of 245,000 bpd from May, two industry sources said.
Saudi Arabia increased its oil output by 458,000 bpd in June from May, pumping an average of 10.488 million bpd and selling even more, with some of that supply coming from storage, OPEC sources told Reuters.
The difference between the two countries’ numbers lies in the scale and sustainability of the increase: thanks to the geological structure of Saudi fields, state-run producer Saudi Aramco can quickly add and cut supply.
Such adjustments are harder to perform in Russia, where oilfields and production equipment in Siberia, for example, are beset by freezing temperatures. But the country does have some flexibility thanks to spare capacity in the Transneft pipeline system and in oil tanks at fields, sources say.
Oil production “has restarted so quickly thanks to stocks in reservoirs (tanks) in western Siberia. They belong both to Transneft and to the oil companies,” a senior oil executive told Reuters.
Another oilman and an industry source confirmed that Russian oil companies had boosted production partially thanks to their stocks. They did not say how much of June’s 100,000-bpd increase came from stocks.
According to the sources and an analyst, Russia has around 200,000 bpd in spare capacity that can be used to stock oil.
Last month, the Organization of the Petroleum Exporting Countries and other producers led by Russia agreed to ease global output cuts, adding around 1 million bpd to the market from July 1.
Of that increase, Moscow promised to contribute 200,000 bpd. Under an agreement that took effect at the start of 2017, Russia’s initial cut was 300,000 bpd.
In May, Saudi Energy Minister Khalid al-Falih said he was concerned about possible shortages of spare crude output capacity. “We certainly don’t feel we are where we need to be with complete market stability,” Falih said.