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. Last Updated: 07/27/2016

Crude Cuts Likely to Be Lifted After 1st Quarter

Russia is barely able to keep a lid on its promise to cut oil exports in the first quarter, and an extension of its agreement with the Organization of Petroleum Exporting Countries looks increasingly unlikely.

Energy Minister Igor Yusufov on Friday said the government has yet to decide whether to limit Russia's export volumes after March 31.

"These limitations will be in effect for the entire first quarter, and we will abide by them until the government decides otherwise," Yusufov said at a meeting with top ministry officials.

Russia's relationship with OPEC came to a head in November, when the oil cartel demanded that other oil-exporting nations, including Russia, cut back on exports to support the price of crude. In the past, Russia has used OPEC production cuts as an opportunity to increase its own market share.

While selling oil at the expense of the Arab states has won it few friends, Russia has the "historical right" to take back market share that was lost after the collapse of the Soviet Union, Andrei Illarionov, President Vladimir Putin's top economic adviser, said during a television interview last week.

In the end, Russia agreed to cut 150,000 barrels per day during the first quarter. Industry analysts brushed off this gesture as purely symbolic because the government usually scales back exports during the winter to maintain domestic fuel oil supplies.

Russia has indeed scaled back, said Stephen O'Sullivan, head of research at the United Financial Group brokerage. This has caused a glut in the domestic oil market, where a barrel of Urals crude sells for about $3.50 per barrel. April deliveries of benchmark Brent -- which trades at a $1.50 premium to the Urals blend -- closed at $19.97 on Friday.

According to an International Energy Agency report issued Friday, Russia actually increased its exports by about 500,000 bpd from December to January, The Associated Press reported. However, OPEC isn't keeping its end of the deal, either. The IEA estimates that the cartel is pumping 1.3 million bpd above its agreed ceiling of 21.7 million.

Average demand growth for last year was the lowest since 1985, according to the IEA, and oil prices will probably hover around $20 until late summer, when the extent of the economic recovery in the United States should become clear, O'Sullivan said. OPEC says that prices may plunge if Russia and the group fail to reach an understanding about crude output.

"That's a bit like the pot calling the kettle black," O'Sullivan said, citing OPEC's own overproduction. "The spring is a weak time for demand anyway. I don't think OPEC will engage in a price war."

Yusufov said that Russia exported some $52 billion worth of energy resources in 2001, which accounted for 36 percent of all federal budget revenues, Interfax reported.

Russia consumed 1.46 billion tons of fuel equivalent in 2001, 44 million tons more than in 2000, the minister said. Fuel consumption broke down into 69.8 percent gas, 23.9 percent coal and 6.7 percent fuel oil.

Yusufov said the country would refine 186 million tons of crude this year, up from 178.4 million tons in 2001. He also said production would surge 6 percent this year, slightly off last year's figure of 7.7 percent, or 348.1 million tons.