A decision by the Organization of Petroleum Exporting Countries to raise output quotas in the aftermath of the Iraq war baffled analysts and sent oil prices falling. The move may also rattle Russia's economic planners, who had just announced plans to boost oil exports by 15 percent this year.
Boston, 25 April 2003 (RFE/RL) -- Russia's economic plans and its new status in the oil industry may face challenges following a decision by the Organization of Petroleum Exporting Countries (OPEC) this week.
Although Russia is the world's biggest non-OPEC oil producer, it was reduced to the role of a bystander as the 11-nation cartel met in Vienna this week (24 April) to decide output levels that quickly drove prices down to five-month lows.
It was unclear whether the effect would be long-lasting as the market struggled to make sense of the latest OPEC move.
Analysts were stunned after the 10 participating members, excluding Iraq, announced they would boost official production quotas by 900,000 barrels per day on 1 June. The step confounded predictions that they would vote for a cut in the aftermath of the Iraq war to avoid a price plunge.
The immediate effect was a drop in some prices to below $26 a barrel, the lowest since November. But Venezuelan Oil Minister Rafael Ramirez insisted, "We are removing 2 million barrels a day from the market, and we will make it clear that this is the first step to another possible reduction."
The Reuters news agency quoted Raad Alkadiri, a director of the Washington-based PFC Energy consulting group, saying, "This is a highly confusing decision, and it sends a very confusing message to the market."
The point of the numbers game may be to take up the slack in Iraq's production as it slowly recovers and legal questions become clear about who has title to its oil. Doubts have kept traders from buying any of the northern oil that has already filled tanks at the Turkish port of Ceyhan.
U.S. officials have said that the first use for restored oil flows in the south, which started this week, will be for Iraq's domestic needs.
In an interview with RFE/RL, Robert Ebel, director of the energy and national security program at the Center for Strategic and International Studies in Washington, blamed some of the market confusion on the lack of transparency from OPEC leader Saudi Arabia.
Ebel said, "This is what happens when the world's leading oil producer does not provide the world with accurate daily or even monthly data."
But the situation may also highlight problems for the world's second-place producer, Russia, which was apparently not consulted in the OPEC decision, although it has often made a show of cooperation in the past.
This week, one day before the OPEC announcement, the Russian government unveiled an economic plan providing for a 15 percent increase in oil exports this year. Plans for 2004 through 2006 are based on two possible outcomes for oil prices, but both call for further increases in oil exports.
Russian industry officials have often argued that the country cannot turn its Siberian production on and off as easily as Saudi Arabia can. Robert Ebel said, "They're going to produce regardless."
The problem may leave budget planners powerless, despite shows of independence from OPEC, while other factors like the speed of Iraqi recovery come into play. The sudden swings in oil prices and Russia's relative weakness to influence events could take some of the market glow away from this week's $35 billion merger of the Yukos and Sibneft oil companies, since nearly all of the merged YukosSibneft's holdings remain within Russia.
The events suggest that Russia's economy remains not only dependent on oil but also vulnerable to OPEC decisions, even though its share of the world oil market continues to grow.