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Russia: Moscow Pledges Token Cut In Oil Output As OPEC Grumbles

  • Michael Lelyveld

Russia has promised a token cut in oil production as OPEC nations get set to meet in Vienna tomorrow to consider slashing output by at least 1 million barrels per day. OPEC nations are grumbling about Russia's lack of support as they face the loss of more revenue and market share to Moscow.

Boston, 13 November 2001 (RFE/RL) -- Russia is again at the center of efforts to prevent a plunge in world oil prices as the nations of OPEC -- the Organization of Petroleum Exporting Countries -- prepare to cut production for the fourth time this year.

Ten countries of the oil cartel are set to meet tomorrow in Vienna to announce a cut of at least 1 million barrels per day. The group has already slashed daily output by 3.5 million barrels this year, but the world economy has cooled demand even faster than OPEC has cut.

The producers have delayed action for weeks while seeking support from non-OPEC nations like Russia. Despite a flurry of activity, Russia seems to have given OPEC no significant help.

According to Interfax, after a weekend of lobbying by Saudi Arabia, Venezuela, and other OPEC members, the government announced on 11 November that Russian oil companies meeting with Prime Minister Mikhail Kasyanov had agreed to a temporary drop in output of only 30,000 barrels per day.

In Vienna, the business news agency AFX quoted a bitter response from an unnamed OPEC official who said: "Thirty-thousand will not do anything.... You either make a proper cut or you don't cut at all." The official said OPEC is seeking a reduction of 300,000 barrels per day from Russia, not 30,000.

The size of Russia's token cut is the same as the amount promised more than six weeks ago. In late September, Deputy Prime Minister Viktor Khristenko said Russia would reduce exports by 1 million barrels in the fourth quarter. So far, there have been no signs that the decrease of roughly 30,000 barrels per day has taken place.

Interfax reported yesterday that Russian oil production has jumped 7.6 percent in the first 10 months of this year. Russian oil companies have been taking advantage of OPEC-supported prices to pump more oil and boost Russian revenues.

The OPEC cartel, which accounts for about one-third of world production, now faces the prospect of further losses in market share and power unless it can convince Russia to alter its course. The country now ranks as the second-largest producer of crude in the world.

By midday yesterday, oil prices had dropped by at least one dollar per barrel, driven down by a combination of the news from Russia and the crash of American Airlines Flight 587 in New York. A report from the International Energy Agency on lower demand in the third quarter deepened OPEC's gloom.

The losses meant the market gave up all of its gains from 9 November, when Kasyanov announced that Russian producers would submit a plan for voluntary cuts.

There now seem to be doubts about the oil market on several fronts.

While economic weakness drives down prices, there may also be little unity among OPEC members even if cuts are announced. On 10 November, Iranian Oil Minister Bijan Namdar Zanganeh said his country will not bear the brunt of cuts without help from non-OPEC nations like Russia.

Zanganeh said: "If there is no cooperation from non-member states, Iran will not be prepared to reduce its production by even a single barrel." The threat may mean that Iran will produce above its assigned OPEC quota. Cheating by OPEC members is already said to amount to 800,000 barrels per day.

There is also uncertainty about whether Russia will even implement a modest reduction. Speaking with reporters on 10 November, Russian President Vladimir Putin indicated that any cut in exports would be nothing more than the result of seasonal domestic demand.

Quoted by Interfax, Putin said there are no plans to lower production because -- as he put it -- "in the winter, the internal consumption of oil and petroleum products increases." Russian producers have also proved adept at avoiding any attempts to restrain their exports.

Despite repeated pledges of cooperation with OPEC, Russia is now in a position to raise its market share at OPEC's expense. Russia's revenues may stay high unless it overplays its hand and prices fall too far.

The pattern is similar to one Russia has followed all of this year.

Moscow promised reductions in the second quarter to OPEC leaders, including Venezuela President Hugo Chavez. Instead, Russia increased its oil output even faster.

While production rose 5.9 percent from a year earlier in the first quarter, it was up 6.9 percent at mid-year. Russia's crude exports outside the Commonwealth of Independent States -- which have the greatest impact on world prices -- climbed a record 12 percent in the first half of the year, according to "Petroleum Argus," an industry newsletter.

And while the Russian government was promising OPEC in May that it would cut its oil exports in the second quarter, it was sitting back and reaping higher revenues as Russian producers exported at record levels in both May and June.

There now seems to be little basis for believing Russia will change its policy of maximizing oil exports, unless prices fall so low that its own economy will suffer harm.