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Russia Nov Oil Output At Post-Soviet Record High

Source: Reuters 12/2/2011, Location: Asia

Oil output in Russia, the world's top crude producer, stayed at a post-Soviet high of 10.34 million barrels per day (bpd) in November, encouraged by a record rally in its Urals blend, though analysts said it would struggle to fully exploit high prices.

Urals crude has been enjoying a premium to North Sea crude BFO- for more than a month now, its longest ever winning streak against the global benchmark.

The diesel-rich grade has been supported by strong refining margins in Europe and fears of a loss of Iranian supplies if new sanctions against Iran were to cut supplies to key consumer nations in the European Union.

That threat receded on Thursday, but Urals retained its premium to the benchmark.

"The high price helps output there is no doubt, and the higher the price the more they will produce," VTB Capital energy analyst Dmitry Loukashov said. But with no spare capacity, and policy aimed at sustaining output from depleted fields in the Soviet-era oil heartland of Western Siberia, any effort to capture high prices were likely to appear modest in the context of overall Russian output.

"The effect will be marginal," Loukashov said.

Russian production first reached the 10.34 million bpd mark in October following a cut in the crude export duty, granted under a reform known as "60-66" designed to boost export economics for crude and some high value products.

The same month, output flagged in Saudi Arabia, its rival for the top spot.

In a sign that the fiscal reform would have the desired effect, analysts quoted a senior executive at Rosneft as saying that the fiscal reform would ultimately drive an increase in production at its largest field by 30 million tonnes.

It has also said it would step up drilling at its largest production unit.

Some analysts and oil executives have said 60-66 could tip some of the older, more depleted wells in Western Siberia, where oil companies are struggling with declines, back into profit and elicit a quick boost to Russian output.

Loukashov disputed the notion that the fiscal reform was behind the past two months' increase in output, though he said the resulting increase in drilling would yield profitable new output over time.

"It is political will on the part of the Russian companies rather than the effect of 60-66," he said.

"There are no marginal wells which automatically switch on after 60-66."

Increasing output in the second half of the year has in no small part resulted from a ramp-up in output at Rosneft's Vankor in the Arctic, which pushed the company to record output earlier this year.

Russia's daily natural gas production increased to 2.02 billion cubic metres (bcm) last month from 1.80 bcm in October.

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