For most of the last decade, OPEC and Russia, collectively referred to as OPEC+, have aligned their interests in maintaining high oil prices and set production quotas that furthered this goal. Saudi Arabia, OPEC’s largest member, has, as part of its Vision 2030 Initiative, a multi-trillion-dollar goal of diversifying its economy away from dependence on hydrocarbons and uses oil revenues to fund this initiative. Russia relies upon oil revenues for about a third of its general revenue, and to fund the war in Ukraine.
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Both countries in the past have sought a Brent price in the $80’s to balance their books. And both have had to pinch back spending as the restoration of supply cuts in pursuit of reclaiming market share from U.S shale producers, and pressure from the Trump administration, have led to increasing global inventories. Rapid production increases since April of 2025 have taken the price of Brent from around $80 to the mid-$60’s, with some pundits forecasting a decline into the $50’s as the new year starts.
What the market has not priced into its assumptions for crude is the fragility of Russian production thanks to global sanctions since the invasion of Ukraine. A recent article, carried in the Wall Street Journal, discussed the impact of sanctions and the aging out of the country’s legacy production hubs in Western Siberia and the Volga-Urals region.
The article noted that these fields, even before the war in Ukraine, were starting to run low, forcing oil companies to look farther afield to maintain production, potentially tapping their huge shale reserves using Western technology. Post-war sanctions prevented this outcome and have exacerbated the decline. Matthew Sagers, Russia expert at S&P Global Commodity Insight,s noted for the article-
“Getting oil out of the ground is harder and more expensive, but the deteriorating resource base means you have to run faster every year just to stay in place,” he said. “It’s essentially a long, slow goodbye for Russian oil.”
U.S. and EU sanctions have denied the Russians the equipment and technology that would have been needed to carry out this feat. The U.S. shale production growth has supplied most of the world’s incremental oil production growth over the last decade and a half. Since 2010 shale reservoirs have added about 8 million BOPD to global supplies. U.S. Field Production of Crude Oil has ramped from about 5.4 mm BOPD to 13.5 mm today. What isn’t fully appreciated by the average person is that this success was the result of U.S. producers figuring out how to profitably produce these reservoirs at oil prices well below the $90-$100.00 per barrel that prevailed in the early days. I discussed the evolving production dynamics in American shale plays in a previous OilPrice article.
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