Russian oil subject of debate behind closed doors at OPEC

Sep 06, 2001 02:00 AM

The activities of the world's third largest oil producer, Russia, have become the subject of debate behind closed doors at OPEC, given the prospect of sharply lower oil prices next year. Russia has been attending OPEC meetings as an observer for the past few years, but hasn't been part of output pacts since 1998. So far this year, OPEC has cut output a total of 3.5 mm bpd in an attempt to prevent oil prices from crashing amid a gloomy outlook for economic growth and oil demand.
OPEC sources said despite repeated calls from OPEC for cooperation from Russia, its output has continued to rise in recent months. "The floodgates have opened... since the first quarter Russian crude supplies on the (Mediterranean) have generally increased, and if we are going to control the market Russia also needs to be more forthcoming," one OPEC delegate said.

According to the Paris-based International Energy Agency's August oil market report, Russian crude output has been at record levels since February, resulting in exports of almost 5 mm bpd. One OPEC source said unless Russia's crude output is controlled, crude oil prices could be pushed down to between $ 16.00-$ 18.00 a barrel by early 2002.
Prices are currently within OPEC's targeted range of $ 22-$ 28 a barrel. OPEC officially says it is in its interest to continue dialogue with Russia. Secretary General Ali Rodriguez told he is keen to closely work with Russian oil officials to guarantee better cooperation. "I want strong cooperation and links with Russia," Rodriguez said, but added that he wants to avoid scenarios whereby OPEC members cut output to maintain oil prices "at a good level" while others increase output.
Behind the scenes, some members are suggesting Russia should be excluded from OPEC meetings to punish it for its lack of cooperation. "I think it is unlikely that we will get the kind of cooperation we want from OPEC through diplomatic means... the only way possibly is to threaten them," one OPEC source said. But a Libyan OPEC delegate told most members don't want to sever links with Russia. "We need to keep a soft tie rather than no tie," he said.

Unless OPEC works more closely with Russian oil officials, sources said they are concerned Russia will continue to ignore any requests by OPEC to join it on future output decisions. Several OPEC delegates are now calling on senior OPEC officials to meet with their Russian counterparts to resolve the situation. "Ministers should be talking at the highest level," one senior OPEC source said. Rodriguez said any request by Russia to join OPEC would be welcomed by the group, although Russia's oil minister has said recently this isn't being considered.

Source: Dow Jones
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