Russia remained ahead of Saudi Arabia as the world's top oil producer in July, producing 10.26 million barrels a day to match a post-Soviet oil output record reached in May, according to new government data published Tuesday by the Prime news agency.
Russia remained ahead of Saudi Arabia as the world's top oil producer in July, producing 10.26 million barrels a day to match a post-Soviet oil output record reached in May, according to new government data published Tuesday by the Prime news agency.

Russia , whose government relies heavily on oil sector revenues, has kept oil production stable above 10 million barrels a day since September 2009. But its position as the world's biggest oil producer could be threatened by Saudi Arabia , a bigger oil exporter that has been raising output in recent months.

The kingdom ramped up production in July to 9.85 million barrels day--the highest level since early 1980s--to compensate for Libyan shortages and to meet higher demand in Asia and in the Middle East during the Ramadan period.

Russia produced a total of 43.38 million tons of crude oil in July--around 12% of global supply--but exported just 19.92 million tons or 46% of that total, as domestic demand picked up, according to the data released Tuesday.

Russia tends to manage its oil industry with a focus on maintaining government oil revenues, rather than in response to international oil market price movements.

Analysts expect only slight changes to Russian production in the next few years. Producers say they need more clarity on taxes to justify new large investments, but any changes have been delayed, as top government officials have engaged in a heated debate in recent months about how much the country's already heavily taxed oil industry should contribute to closing a budget deficit.

An executive at the country's biggest oil producer OAO Rosneft (ROSN.RS) said Monday that there still is "not much visibility" on possible new tax changes.

State-controlled Rosneft was promised extensive tax breaks as it invested billions to develop the Vankor field in remote East Siberia . But in May--less than two years after the field was launched--the government cancelled the preferential tax breaks, as it increases spending ahead of parliamentary and presidential elections.

"Only if the government is convinced production is about to fall, will they give widespread tax incentives to producers," said Mark McCafferty, Head of Russian Upstream Research at Wood Mackenzie.

McCafferty thinks tax incentives will continue to be tailored to challenging developments in more remote regions. I don't think there will be a widespread change in the tax system any time soon," said McCafferty. "There is simply no urgent need to do it now."

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