RUSSIA Choking

Hi, welcome back to the channel. In today's episode, I want to talk to you about what's happening in the Russian economy and specifically to talk about Russian oil production, because it's the most important form of revenue that Russia has. Oil is absolutely critical to the long term success of Russia. And the problem that Russia has at the moment is that the walls are closing in in terms of the sanctions. The sanctions have been in place since Russia invaded Ukraine in February of 2022. So they've been around for around four years. However, over the past few months, we've really seen them starting to sharpen up and they're starting to hurt Russia in a way that we haven't seen at all in the previous few years. And I think this is a big change in terms of what's going to happen to the Russian oil industry as we go forward through 2026. Now, the figures have just been published for December and they show that oil production in Russia is the lowest that's been seen for 18 months. It was down by 100,000 barrels compared to the previous month and it's down by 250,000 against the amount that Russia is allowed to pump under the OPEC restrictions. Now, Russia is one of the leading members of OPEC and OPEC is the consortium of oil producing countries that comes together every month or so. And besides, how much oil is going to be released into the international markets? And the reason why they do that is because OPEC wants to control the price of oil. They've been trying to keep the price of oil high. So over the last couple of years, OPEC's actually been cutting back on the amount of oil released into the global markets to try to keep the price up. Because if you're selling something, you want to get the best possible deal for it. But over the last six months, we've seen OPEC have a change of heart. They've started pumping more oil back into the global network. And the reason for that is because Saudi Arabia, who's one of the other leading lights in OPEC, decided that everybody else was cheating. They were actually producing more oil than they were allowed to so that they could make more profit for themselves. So Saudi Arabia thought, well, we're not having this. We're going to start producing a lot more ourselves. Now, interestingly, Russia historically has always produced more oil than it was meant to under the OPEC agreement. However, it's not doing that at the moment. And there are some really good reasons for that. Have a look at this chart. It shows two different lines. The black line is the required production under the OPEC allowances. So basically, this is Russia's quota that's given to it by OPEC when they work out how much oil can go into the global market. So OPEC says, OK, you're allowed to produce. And if we look back at March 23, you can see that that was set at around about 9.4 million barrels per day. And that went through to the start of 2024. So OPEC had a stable level at that point. Now, as I mentioned at the start of this video, OPEC Plus decided that it was going to cut the amount of oil in the global markets to push prices up. So you can see that in April or March of 2024, Russia's allowance was cut from 9.4 million barrels a day to around about 9 million. When you think about a 400,000 barrel per day cut, if the price of oil was running at $100 per barrel, that's $40 million per day of lost revenue, which comes out at around about $14 billion per year. So OPEC Plus carries a lot of weight in terms of what Russia's total revenue will be. Now, you can see that that situation was continued right through to the start of 2025. And then, as I said, OPEC Plus decided to start increasing the amount of oil everybody was producing again. You can see that Russia's quota was actually increased to a level above where it had been back in March 23. So it was up at almost, it's currently up at around 9.6 million barrels per day. So that's an increase of 600,000 barrels per day from Russia's point of view, which could be $60 million per day of extra revenue. If we now look at the yellow line, as I said, historically, Russia always crept over its allowance with OPEC. So it was producing more than it should have, basically because it's got so much oil and it wanted to just keep pumping it, it was so excited, and also it was selling it into the markets to countries like India. So you can see that from March 23 right through to July 24, the yellow line is above the black line. So that means that Russia was producing more than it was allowed to under OPEC. So being a bit naughty there, Russia, but it was getting away with it with OPEC. Then we saw a period in the second half of 2024 and the first part of 2025 when Russia was right in line with its production that it was allowed to under OPEC. However, if we look at what's happened over the past few months, you can see a really interesting trend. Firstly, Russia is now producing less than it's allowed to under its OPEC allowance. And if you look at the figure for November and December, you can see that is significantly below. So it's allowed to produce 9.6 million barrels. In December, it only produced less than 9.3 million. So that's a 300,000 barrel per day shortfall. So that tells us that there is a problem in Russia right now because in the past, it's always beaten, it's always overexceeded its OPEC targets. Now it's falling short and there are a number of reasons for this. Firstly, it's because of the sanctions because whilst Russia can produce all of this oil, it could pump out 9.6 million, it could probably pump out 10 million barrels a day if it wanted to. It needs to be able to sell that oil because it doesn't have anywhere to store it. So if it hasn't got buyers, it's not going to keep producing the oil at the same rate because at some point it will be full, all of the storage facilities that Russia has will fill up and then it would have to close down its oil production completely. And what we're seeing at the moment is that the buyers from India and China are turning their back on Russia because of the increase in the sanctions, the risk of secondary sanctions and the fact that Luck Oil and Rosneft have been hit with direct sanctions means that companies are now cautious about buying Russian oil. So there isn't a demand for this oil and Russia is in a really sticky situation at the moment because it's got all of this oil, it's producing, nobody is purchasing it. And if we have a look at this chart, it shows the amount of Russian oil that's currently on tankers that's just floating around in the sea. This chart dates back to January 25. At that point, Russia had around about 150 million barrels of oil on the sea at any one time. And that was broadly speaking about the level of trade that Russia had. So it takes six to eight weeks for a lot of this oil to actually get to its destination. So it will be on the sea for a period of time. It's quite normal to have lots of oil in transit. I can see in 2025, it started going up and then it came back down again in August to around about the same level as where it had been at the start of the year. However, since September of 2025, we have seen a huge increase in the amount of Russian oil sitting on tankers on the sea. And the current level that we've had reported is 216 million barrels of Russian oil currently floating around on the ocean. So that's almost a 50% increase from where we were at the start of 2025. And the reason for this is because Indian and Russian companies don't want that oil anymore. They're not taking delivery of it. And the problem that Russia has is that it's using these tankers now as a form of storing the oil, putting it on the tanker. You can put 2 million barrels of oil onto one tanker. So you can do that. And then it's a good way of having it there in reserve when hopefully from Russia's point of view, they can sell it in the future. The problem they've got is that these tankers are now full. And once you fill the tanker, if it doesn't unload, you can't fill it again. And Russia is running out of storage space. And also we're seeing the walls closing in on these tankers. So the USA recently commandeered a number of Venezuelan tankers. And as part of that, one of those claimed to be Russian, the USA still boarded it and took control of it. So a lot of the tanker owners are now concerned about what's happening with regards to the sanctions. So they're worried about taking on this oil as well. So Russia is being squeezed from all sides here and the production levels are starting to fall. We are seeing that from the data. And the problem that Russia has is that it needs to keep operating at the optimal level. It needs to keep drawing as much oil out of the ground as those wells will allow. As soon as you start trying to choke the oil to stop the flow, to reduce the amount coming out, you're going to cause problems for yourself down the road because that oil is building up ahead of steam. It wants to come out at a certain rate. It's not like switching a tap on and off. You can't just suddenly switch it off, leave it off for a couple of months and then switch it back on again and hope that everything will be hunky-dory because it won't. You'll have major problems, particularly because a lot of Russia's oil wells are in very cold climates. So there will be serious problems if they stop pulling out that oil. So I wanted to share this data with you because I think it's another form of evidence that the Russian oil industry is now starting to creak and we could see it collapsing at some point over the next 12 months. If the current level of sanctions application continues, which is likely because we haven't got any form of agreement in terms of what's happening in Ukraine, then Chinese and Russian buyers are going to pull back further and also Turkish buyers, they've been pulling back from buying Russian oil also. And because Russia doesn't have anywhere to store it, at some point, it's going to have to pull back on the production. We're already seeing it happening. You can see it clearly from this chart that in October, November, December, it's starting to come down, not just reduce against the OPEC limits, but actually physically coming down the production levels. And Russia recently introduced a gasoline or extended its gasoline and diesel export bans because it doesn't have enough to serve its home markets because the refineries are being hit with drone attacks and Russian oil wells are also being hit with drone attacks. I recently reported the fact that Lukoil had two of its offshore oil wells, three in fact, sorry, three offshore oil wells were hit with drones. So that's a major problem because you can't have fires and explosions on oil wells out at sea. You have to evacuate everybody if that happens. So Russia's having real problems with its production because of those attacks, but it's also now having to pull back on its production as a result of the fact that there isn't buyers to take that oil off their hands. And if this carries on, Russia is going to have some very serious problems in 2026 because it's continuing to spend more than it earns. And if the earnings are going down as well as the production, then that's going to make the situation even worse. So hopefully you've enjoyed today's video. You found it useful, informative, and thought-provoking. If you've liked what I've said, then please give me a thumbs up. Please subscribe to the channel if you haven't done so already. It really helps with the algorithm. So please do that. Please give me that thumbs up as well. Don't forget I'm running my competition at the moment whereby you can win my house located close to one of the best beaches in the UK or a cash prize of 250,000 pounds. It's another way of helping the channel. So if you'd like to help me out, then scan the QR code on the screen now, click the link in the description below. It'll take you through to the independent company that's hosting that competition for me. Thank you so much to everybody that supported me in other ways. If you've bought me a coffee, send me a YouTube super thanks. 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