Is Russian oil production back?
After months of struggling, Russia says its crude production rose nearly 1% in April. If sustained, that could bode well for global oil supplies in the event demand ever recovers. But take the latest data with a grain of salt.
Russia's Energy Ministry said Monday the country pumped 9.85 million barrels a day on average in April, up slightly from 9.79 million barrels a day in March. (The world's next biggest producer, Saudi Arabia, currently pumps about 7.9 million barrels a day.)
But analysts at Sanford Bernstein rubbished the data, saying: "Despite perceived strength in March and April Russian oil production data, we do not believe the data supports a theory of returning output growth in the country." Year-to-date production is still below last year's, the analysts note.
Juicing oil-field output in the short run isn't so hard - enhanced oil-recovery techniques like injecting steam or natural gas into reservoirs make it easier to pump additional lingering quantities of crude. The trick is keeping it up. And on that count, Russia still faces plenty of obstacles, not least an onerous tax policy that has stunted upstream investment and will take years to correct.
Yes, Russia has taken steps to ease the tax burden and encourage investment. But the global recession and lowish oil prices drove many Russian producers to slash capital expenditures, spelling more trouble for the country's future oil production.
Like many oil forecasters outside Russia, consultants at PFC Energy in Washington think the country's crude production could drop by at least 300,000 barrels a day in 2009 after sinking by almost 100,000 barrels a day last year, based on PFC calculations.
For all the fanfare in Moscow over April's oil data, Russia's real production woes - coupled with even starker output declines in countries such as Mexico - could end up giving OPEC just what it's been asking for: Tighter oil supplies and rising oil prices.