Russian oil output appears to be rising

Feb 11, 2002 01:00 AM

Russia may be on a collision course with members of OPEC only months after the two sides avoided conflict in oil markets. Russia's oil output and exports appear to be rising, and Russian officials are urging oil companies to prepare for an even bigger role in world oil markets. Data released by the International Energy Agency showed Russia's oil output rose by some 60,000 bpd to 7.26 mm bpd in January, and exports of crude oil and refined oil products from the former Soviet Union rose by 760,000 bpd to 4.92 mm bpd.
The increases came despite a pledge given by Russia in December to reduce shipments in the first quarter of this year, a pledge that was instrumental in averting a price war threatened by OPEC.
"Initial readings suggest that Russia is having a difficult time managing its reductions," said Klaus Rehaag, editor of the IEA's monthly Oil Market Report, who noted the difficulty of immediately separating Russia's exports from those of such former Soviet republics as Kazakhstan, which share pipelines and ports. That was in line with the IEA's expectations. "Last month we had said Russia wouldn't cut at all," Mr. Rehaag said.

Indeed, Russian officials lately have been encouraging the oil industry to think bigger. In the latest statement, Russian Oil Minister Igor Yusufov was quoted as telling a conference in Moscow that "Russian oil companies should strengthen their positions in international markets and not give them up to anyone." Mr. Yusufov also said that Russian companies should be ready to supply as much crude oil as possible to world markets this year, indicating that any Russian restraints on oil exports would be short-lived.
Russia had promised to reduce its oil exports by 150,000 bpd in the first quarter, using the average of last year's third quarter as a baseline. The latest IEA data showed the former Soviet Union's crude exports averaged 3.74 mm bpd in January, up from 3.52 mm bpd in the third quarter of 2001.
President Vladimir Putin defended his country's policy onoil exports. "We are of course interested in the inflow of hard currency to Russia from selling of energy," he said in an interview. "But we are not interested in exaggeratedly high prices for oil and other energy resources. Overpricing, particularly if it lasts for a long period of time, causes a number of problems of a monetary character for Russia which effects our development."

The IEA was founded by major industrial countries after the first oil shock of the 1970s to protect the interests of major oil consumers and, among other things, is in charge of operating an oil-sharing system among its members in case of a massive supply disruption.
Not everybody in the oil industry agreed with the latest IEA data on Russia. Simon Kukes, president of Tyumen Oil, said Russia was complying with the promised crude oil export cuts. "There is no cheating there, but refined (oil product) exports are going up" and will increase further in February, Mr. Kukes said.
Others were less certain about the Russian oilexport scene. "There are differences of opinion among data collectors," said Lawrence Goldstein, president of New York-based Petroleum Industry Research Foundation. "It's too early to know what the truth is," he said.

Even Mr. Rehaag cautions about making too much of the data from January, when oil exporters -- both members of OPEC and others -- had little time to meet their promises of reduced output that were agreed at an OPEC ministerial meeting on Dec. 28. "You've got to give the producers some more time," he said.
But the issue is likely to come to a head when OPEC's oil ministers meet in Vienna. The prospect that they will face is of non-OPEC oil supplies growing by about twice as much (1 mm bpd) as demand (500,000 bpd) this year. OPEC already has some 7 mm barrels in idle production capacity, and the cartel is hoping that not only will Russia have delivered on its production cut, but that Moscow will agree to prolong the cuts through the second quarter.

The Wall Street Journal staff reportersBhushan Bahree in Paris and Thaddeus Herrick in Houston; Jeanne Whalen, Karen Elliott House and Andrew Higgins in Moscow contributed to this article.

Source: WSJE
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