Russia prepares pump oil after the OPEC deal expires

Once the global agreement on the production cuts expires in 2022, the Russian government plans on drilling idle oil wells to prepare for the restoration of oil output. The Russian government has published the statement on its approval of the program on Tuesday. 

At the beginning of April, the Organization of the Petroleum Exporting Countries and its allies agreed on cutting global oil production by 9.7 million BPD. Russia has accepted to decrease its oil output by approximately 2.5 million barrels per day to 8.5 million barrels. The decrease has been the lowest for more than a decade.

The office of First Deputy Prime Minister of Russia agreed to support the recommendations of the energy and finance ministers to assist oil producers in setting up a fund of “unfinished oil wells.”

The move will support the oil servings companies at a period of dropping demand due to the production cuts and the coronavirus outbreak.

Alexander Novak, the energy minister of Russia, stated that the oil producers would order equipment and services from the country’s oil servicing companies. Local banks will help them financially for drilling wells.

Russian will carry out the drilling operations in 2020-2021. However, they will stay idle until April 2022. This is when the current deal of production cuts expires. Subsequently, during the next few years, the wells will be launched with the expected growth in demand.

The Russian government statement said the measure would stimulate oil companies to invest funds into more development of oil fields. 

Earlier in the year, OPEC and Russia reached an agreement to reduce oil production

The health crisis caused travel restrictions and quarantines in multiple nations across the world. It destroyed global energy demand, with international oil prices falling to their lowest levels.

Amid the crisis, the first OPEC + negotiation to stabilize global production failed in March. It sparked a market war between Russia and Saudi Arabia. This further plunged the price of the crude oil to $20 per barrel.

In an attempt to contain the collapse in oil prices, OPEC and Russia reached an agreement to cut oil production. According to the plan, the production cut would be equal to approximately 10 million barrels per day for May and June. Then, until the end of the year, the quota would be reduced to 8 million barrels per day. And till the end of April 2021, oil production would be reduced to 6 million barrels per day.