Moscow renews cooperation with OPEC

Jan 08, 2003 01:00 AM

Rising oil prices have renewed talk of cooperation between Russia and (OPEC) for the first time since an open split with the cartel last May. But while Saudi Arabia can act quickly to calm market concerns about Venezuela and Iraq, Russia may be able to provide little more than moral support.
Russia said that it will cooperate with Saudi Arabia to keep oil prices from rising too high, seven months after refusing to help it keep prices from falling too low. At a meeting in Riyadh on 5 January, Russian Energy Minister Igor Yusufov joined Saudi Oil Minister Ali al-Naimi in a call for action to counter the effects of civil strife in Venezuela and a possible war with Iraq. Both factors have pushed oil prices above $ 30 per barrel in recent weeks.

Before an oil-industry strike started in November, Venezuela was exporting an average of 2.7 mm bpd. Other producers are worried that high prices could damage the Western economies on which their countries depend. Al-Naimi said, "During our meeting we discussed the importance of coordination and cooperation between our countries and all other oil-exporting countries, as well as oil consumers, for the stability of the market at all times."
The ministers agreed on "the need to restore the stability on the oil market and to ensure that the prices do not exceed the level that might negatively affect the global economic growth."

On 6 January in Kuwait, Yusufov was asked about cooperation with OPEC. His response was that Russia "was committed to coordinating with oil producers to secure stability in oil markets." Moscow sees a price below $ 28 per barrel as "reasonable".
Yusufov said al-Naimi believed that the 11-nation OPEC cartel and other producers should boost output by 1 mm to 1.5 mm bpd. The talk immediately shaved $ 1 off the price of a barrel of oil on world markets on 6 January. Prices fell further the next day with reports that Saudi Arabia would seek a 9 % increase in world output, adding 2 mm bpd.
The move would completely reverse an OPEC decision less than a month ago to cut production by 7 % due to concerns about cheating on assigned quotas. The seesaw actions may show the futility of cartel attempts to tinker with the markets in undependable times.

Saudi Arabia also showed how fast it can act to move the market on its own. On 7 January, the country let it be known that it had chartered seven big tankers to carry nearly 17 mm barrels of oil to the United States in the next few weeks. But while OPEC members are talking about hikes, it is unclear how Russia would help. The Russian Energy Ministry reported that the country's oil production in 2002 has already risen 9 % to a 10-year high. Export pipelines are said to be at capacity, while some ports like Novorossiisk on the Black Sea were closed for more than half of December by storms.
When asked on 6 January about increasing output further, Yusufov said, "We would prefer not to because we have certain programs scheduled, but we are ready to raise production if necessary." In fact, Russian oil companies have been plagued by low prices at home because they have been unable to export easily after making huge long-term investments in raising output.

For all the reports about Russia's growing power on the world oil market, its oil exports outside the CIS rose by only 3.3 % last year, according to Energy Ministry figures. The latest episode with OPEC may inject a note of reality.
In late 2001, Russian producers argued against cooperating with OPEC, which sought Moscow's help in cutting world production because of fears that prices could fall too low. The Russian oil giants said they could not simply turn their spigots on and off like Saudi Arabia because of their investments in frozen Siberian oil fields. The dispute led to threats of a price war.
In the end, the Russian government decided to make a show of cooperation by offering to match OPEC actions with what was supposed to be a 5 % curb on exports. But Russian oil companies found ways around the restrictions and raised exports by 9 % in the first four months of the year.

Russia took advantage of the OPEC cuts to lift its market share, finally announcing in May that it would drop even the pretence of cooperation. Yusufov's meetings in the Persian Gulf are the first sign that the show of coordination with OPEC is back on. But it is unlikely that the announcements will have any more impact than the previous pledges.
While both OPEC and Russia are driven by the same market, they respond to different pressures. Last month, Deputy Prime Minister Viktor Khristenko announced that Russia plans to raise production by over 10 % this year. Khristenko spoke just days after OPEC announced it would try to trim output by 7 %.
Now that conditions have changed to demand more oil, Russia's plans will stay much the same. The talk of cooperation may have political value, but any common action by Russia and OPEC is likely to result from coincidence rather than coordination.

Source: RFE/RL
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