Russia producing oil near record swells global glut before OPEC meeting

MOSCOW (Bloomberg) -- Russian oil output neared a record in May, damping speculation before OPEC meets this week that major producers may cooperate to curb a global supply glut.

Production of oil and natural-gas condensate climbed 1.6% from a year earlier to 10.708 MMbpd, close to January’s post-Soviet record of 10.713 MMbpd, according to preliminary data from the Energy Ministry’s CDU-TEK unit.

“Russian output has proven to be pretty resilient to the fall in prices, and they will not have a problem keeping production up for the next year or two,” said James Henderson, who researches the Russian oil industry at the Oxford Institute for Energy Studies.

The Organization of Petroleum Exporting Countries, meeting June 5 in Vienna, will probably maintain its output target of 30 MMbopd, according to a Bloomberg survey. Global supplies have continued to outpace demand six months after the group adopted a policy aimed at keeping its market share. Saudi Arabia and Russia are both pumping oil at near record levels.

Russia’s May crude exports reached 5.06 MMbpd, rising 1.95% from a year earlier while falling 5.7% from April, according to ministry data.

Production increases were driven by condensate output from SeverEnergia, a Siberian joint venture between OAO Novatek and OAO Gazprom Neft. Novatek and Total also started their Termokarstovoye project in May and expect to pump 800,000 metric tons of condensate there this month.

Russian output has continued to grow even after oil prices sank and the U.S. and Europe imposed sanctions against the industry over the government’s role in the conflict in Ukraine.

Russia produced 10.67 MMbpd of oil and gas condensate in April, according to the Energy Ministry. Soviet-era crude and condensate production peaked at 11.48 MMbpd in 1987, BP Plc data show.

Saudi Arabia, which led OPEC to refrain from cutting output at a November meeting, sees its strategy working, Oil Minister Ali al-Naimi said Monday in Vienna before the OPEC meeting. Saudi Arabia-led OPEC’s strategy sought to defend market share rather than cut production in response to a jump in oil output from the U.S.

“Saudi Arabia has announced the rules of the game, and Russia has no choice but to play by them,” Henderson said. “Russia will keep producing as much as they can.”