Oil Cut Deal Hurts Russia Industrial Output

Russian industrial output shrank more than expected in November, hurt by Moscow’s agreement with other major oil producers to limit global crude output, the economy ministry said late Tuesday.

Major oil exporter Russia joined OPEC and other producers in an agreement to cut oil output from January by a combined 1.8 million barrels per day to end a supply glut. For Russia that will mean a 300,000 bpd reduction from its October 2016 levels, Reuters reported.

The country’s industrial output slumped 3.6% year-on-year in November, the Federal Statistics Service said last week. The slump was “much worse than the expectations of both the market and the economy ministry of Russia,” the ministry said in a report.

Analysts polled by Reuters had on average expected output to edge down 0.2% after holding steady in October. “With the generally positive impact of the OPEC deal on the balance of payments, Russia’s responsible fulfilling of the commitment together with unusually warm weather in November led to an output reduction in the mining sector,” the ministry said.

Output in the electrical energy sector was also pressured by the warm weather, the ministry said.

Last month, Economy Minister Maxim Oreshkin was the first senior official to discuss the negative impact of the output deal, saying it had hurt economic growth in October.

“Because of the OPEC deal we have a negative direct impact from oil production, as well as indirect effects related to low investment activity due to production limits,” Oreshkin said.

Oreshkin and other officials have said the economy was on track to grow by more than 2% after two years of recession. But data on retail sales and other areas have raised questions about the durability of the recovery.