OPEC ministers invited to Moscow

Feb 12, 2002 01:00 AM

by Charles Coe

Ali Rodriguez, the secretary general of OPEC, and Algeria's Oil Minister Chakib Khelil have been invited to Moscow for talks with the Russians on future cooperation with regard to crude production. At the request of OPEC, Russia agreed last December to reduce its crude exports by 150,000 bpd along with reductions from other non-OPEC producers in order to stabilize the market.
As of January 1, OPEC's members (Iraq excluded) cut output by 1.5 mm bpd. However, it remains to be seen if Russian exports really were reduced during January; it has been reported that Russian exports of petroleum products increased last month. Furthermore, there are questions regarding the compliance of OPEC members with their own quotas. OPEC's production volumes for the month are estimated to be more than 1 mm bpd over the group's self-imposed export targets.

There is serious doubt that Russia will agree to continue with export or production cuts beyond the first quarter. The arrangement with OPEC has resulted in Russia's domestic market being flooded with crude, forcing the price down. Meanwhile, several of Russia's major oil companies are also looking to expand production during 2002.
For its part, OPEC is looking to bring crude prices back up to the range of $ 22-25 per barrel range, with a preference for $ 25 per barrel, but most forecasters don't see this happening anytime soon. Most OPEC members rely upon oil earnings as a main source of revenue. But this is not entirely the case with Russia, although oil earnings have certainly help the country's economy over the last two years. Russian officials have said the country can live with oil prices at $ 18 per barrel or lower.

Russia has also made it clear that it is interested in gaining more market share, a prospect that OPEC does not relish. Speaking in New York at the World Economic Forum, Russian Prime Minister Mikhail Kasyanov said that his country would boost exports if there was an economic recovery in the United States and Europe, and he added that Russia had no obligation or agreements with OPEC that would prevent it from increasing production or exports.
Meanwhile, Russian Energy Minister Igor Yusufov confirmed on 8 February that Russia was keen to boost its share of the international crude market. But he said this would be done in a manner that supported prices.
In a veiled reference to OPEC's request that Russia limit production, Yusufov said Russia "should not give up our place to anyone on the oil market. Russian companies should keep and strengthen their role. Strategically, we are interested in supporting prices, but we also want to reduce costs." The minister added: "[In] developing cooperation with oil producing nations in supporting prices in a fair corridor -- which we consider to be $ 20-25 per barrel -- we should also remember we have to guarantee energy resources for our Western partners."

The events of September 11 and the subsequent war in Afghanistan, along with the recurring violence in the Middle East and thegeneral anti-Americanism in the region has driven home to the United States that it is highly dependent upon crude oil supplies from a number of countries where the population is at odds with America and where policies are increasingly being viewed as different from those of the United States and the West.
On the other hand, Moscow has provided Washington with assistance in conducting its Afghan war and also views current political circumstances as a way to make Russian oil exports more attractive to the United States as an alternative to supplies from the Persian Gulf. So US analysts have pointed to Russian crude oil -- as well as future output from the Caspian -- as a means of diversifying US crude supplies away from OPEC.

Source: NewsBase
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