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Russia: Moscow Seeks Greater Influence In Global Oil Markets

Russia officially broke with the policy of the Organization of the Petroleum Exporting Countries this week, as the cartel extended its output constraints. After months of contradictory pledges, President Vladimir Putin has declared Russia's interest in higher oil production to promote the country's economy and its partnership with the West.

Boston, 28 June 2002 (RFE/RL) -- Russia seems poised to gain influence in the world oil market after a decision by the Organization of the Petroleum Exporting Countries to put off production increases until later this year.

At its Wednesday meeting in Vienna, the OPEC cartel announced it would leave its output levels unchanged, despite widespread warnings that rising demand could soon drive oil prices to $30 per barrel. The sentiment within OPEC was to leave daily production quotas at 21.7 million barrels and do nothing rather than tinker with a formula that has been buffeted by war fears this year.

In its statement, OPEC said that its 10 participating members "observed that the relative strength in current market prices is partially a reflection of the prevailing political situation rather than solely the consequence of market fundamentals."

Prices rose a modest 44 cents on the expected news Wednesday to $26.76 a barrel in New York. Officials held out the possibility of raising production by 1 million barrels per day to keep prices from rising too high, but not until OPEC's next meeting on 10 September. The cartel's president, Rilwanu Lukman, said, "If it goes to $30, then we'll do something," Reuters reported.

The inaction was widely seen as a confession that OPEC's quotas have lost much of their power since last year, when the group ordered production cuts totaling 5 million barrels per day. OPEC members are exceeding their assigned daily limits by 1.5 million barrels, "The New York Times" reported. Venezuela alone is pumping 400,000 extra barrels to ease its economic distress.

In the meantime, Russia has taken a more definite step by openly breaking with the OPEC approach. This week, Moscow called a formal end to its cooperation with the cartel's cuts by announcing an export increase of 150,000 barrels per day.

The move, which was first signaled last month, met with last-minute lobbying by OPEC. But unlike earlier OPEC appeals to Russia last year, this one was firmly turned away.

At a Moscow press conference on 24 June, President Vladimir Putin made a detailed economic case for boosting Russia's output, arguing that higher oil prices in the West only serve to raise the cost of Russia's imports and hurt oil demand. Putin said, "This has a boomerang effect on our economy," the RIA-Novosti news agency reported.

Semen Vainshtok, president of the state pipeline operator Transneft, said the company would raise export capacity by 300,000 barrels a day next year, or about 10 percent.

But reports suggest that Russia's export growth has already been under way all year, and the cut of 150,000 barrels per day that it pledged to OPEC last December was as fictional as the cartel's quotas are now.

Second-ranked oil company Yukos has reported production increases of 17 percent, while Sibneft raised its May exports of crude by nearly 35 percent from a year before, Interfax said.

Earlier this month, Reuters reported that Russian oil exports rose 25 percent in January through April, at a time when it had promised OPEC an export cut of 5 percent. When confronted with the numbers, Russian officials say their pledge only applied to pipeline exports.

The difference now may not be one of production but of policy. After months of masquerading, Russia and OPEC now seem to be officially pulling toward opposite poles. Russian producers are unlikely now to face even cosmetic constraints on their exports, so that if OPEC holds back production, Russia will gain market share.

Moscow's position is in keeping with Putin's recent offers to Europe and the United States to serve as a stabilizing supplier. In the past week, analysts have also grown less skeptical about Yukos announcements that it is sending two large cargoes of crude to the U.S. market for the first time. Experts have raised doubts about the cost, distance, and quality of Urals crude for U.S. refineries.

But on Thursday, the industry newsletter "Petroleum Argus" wrote that: "The fact that such shipments have taken place demonstrates Russia's potential to increase its presence on the global market. This is a role that suits both Moscow and the West."

Putin now appears to have moved beyond the stage of making contradictory pledges to all sides, giving the market fewer reasons to doubt Russia's seriousness.