Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Oil Output Declines, Price Stands Ground

Russian oil production fell to 9.7 million barrels per day in January, a 0.9 percent drop year on year, although the country's two largest producers still managed gains, data released Monday showed.

Production slid by an average of 60,000 barrels per day in January compared with the previous month, largely in line with expectations that low global prices would further eat into output, according to data from the Energy Ministry's monitoring center.

In December, Deputy Prime Minister Igor Sechin traveled to an OPEC meeting in Algeria to warn consumers that Russia would be forced to cut supplies if prices remained low. He said the drop would amount to 16 million tons, or roughly 3 percent below 2008 levels, with an average decline of 320,000 bpd.

On the positive side, the price for the main Russian crude blend, Urals, has managed to stand its ground at about $40 per barrel over the past two months. Coupled with the lower extraction tax, the stability on the market made January exports profitable again, said Alexander Sakovich, deputy chief of the Finance Ministry's customs fees department.

Urals averaged $42.8 per barrel in January, while the export duty for the month was based on $44 oil, he said. Oil companies will continue to rake in revenues from exports in February unless the price falls sharply, he said. The February export duty is based on $40.1 oil, he said.

"The financial burden is high, no one is arguing that," Sakovich said. "But when the price is stable, [exports] generates a profit anyway."

The country's producers began losing money on exports in September because the government's previously recalculated the export duties every two months, meaning they were not keeping up with rapidly deteriorating prices.

Urals averaged $39.2 per barrel in December, Sakovich said.

The Finance Ministry is redrafting this year's budget to reflect an average price for Urals of $41 per barrel, well below the original forecast of $95.

Privately held LUKoil, the country's second-largest producer, posted the biggest gain last month, increasing output by 2.4 percent year on year to 1.84 million bpd, the data showed.

State-controlled Rosneft, the country's largest oil company, also boosted production, albeit by a less impressive 0.3 percent. TNK-BP, the No. 3 producer, produced 0.1 percent more year on year.

Russneft, the country's eighth-largest producer, had the biggest drop, with a 7 percent fall. Gazprom Neft, the fifth-largest oil firm, followed closely with a 6.5 percent decline, and No. 4 producer Surgutneftegaz had a fall of 2 percent.

LUKoil chief Vagit Alekperov told The Wall Street Journal in an interview published Monday that the industry needed $10 billion in tax breaks this year to reverse the production decline.

Drilling volumes are likely to fall by 20 percent to 25 percent if the oil price does not fall below $40, Alfa Bank said in a research note Monday.