OPEC seems ready to cut prices

Hoping to profit from contradictions between the USA and oil exporters, Russia runs great risks
Russia’s exports consist mostly of energy resources; practically all expectations of the “non-ambitious” government headed by Prime Minister Mikhail Kasyanov rest upon the desire to get a bigger slice of the world oil market. And this is against a background when the USA has strained relations with Arab states holding leading positions in OPEC; at the same time, America seeks an alternative to reduce its dependency on Mideast oil. Russia and Norway are ready to help the USA with its problem.

Some oil industry experts close to the OPEC leadership say that a 121st OPEC conference will pass a decision on the increase in crude oil production. If the decision is passed, it will come into effect on October 1, and the quota (21.7 million barrel per day as of now) will considerably increase. The conference will be held on September 18 in Osaka (Japan).

A source in OPEC’s headquarters in Vienna told RIA Novosti that the decision on the quota increase would be influenced not only by the position of Russia and Norway, which wouldn’t prolong the reduction of their export oil quotas, but mostly by the coming heating season in the northern hemisphere and the increase in demand for oil resources.

However, in fact, oil producing countries are ready to bargain with the USA, Western Europe, and Japan to the uttermost, but not at a loss in the market. The USA and other developed countries will still consume more oil and oil products compared to others. And Arab oil sheiks will still sell oil to these countries. Moreover, Mideast oil is lower priced, at the time when Russia’s oil infrastructure is outdated and worn out. Russia’s desperate and awkward attempt to make use of the contradictions between the USA and Arabs may become rather lamentable for Russia itself: Arabs may drop prices and Russia will end up losing its shirt. Russia is inexperienced with such policies now; it is perfectly clear that key market makers will settle the contradictions without Russia’s participation. It would seem that Russia should better avoid straining relations with both sides and try to earn at least some money. However, the economic situation in the country provides no alternative: Russia needs money, more money, and at any cost.

OPEC reduced oil production by 20% since the beginning of 2001. At the beginning of 2002, Russia joined the voluntary oil production cuts to keep prices within the limit of $22-28 per barrel. However, Prime Minister Mikhail Kasyanov officially gave up the cuts and explained they disagreed with economic interests of the country. OPEC still keeps the reduced quotas up. Russia’s oil production increased 15% over the past two years. This year, Russia is the world’s first regarding oil production; it has even left Saudi Arabia behind. And Russia actively offers its energy resources to the USA, at that, the obtrusion is modestly called “energy cooperation.” The USA, at the same time, gives no ultimate solution, as it needs no oil from Russia. Its oil stock in Texas and Oregon will be enough for 150 years. Moreover, America better prefers obedient Arabs. Oil producing countries, in their turn, would like Russia to be more obedient and better predictable.

A source close to the OPEC leadership that required anonymity promised in an interview to The Financial Times that Russia would face a price war if it did not stop increasing oil production and exports. “Russians are playing dirty political games with OPEC that gains little trust of Russia on the whole. If Russia wants a price war, it will certainly have it. The time has come to give up the easy treatment and become more aggressive,” the source says. However, the threat was disavowed by OPEC representatives the same very day. Last Friday, OPEC Secretary General Rilvanu Lukman told journalists in London that “it would be silly for Russia to expect that we will constantly reduce our share on the market to allow Russians to increase their oil deliveries.”

Oil exporting countries will bargain to the uttermost, but to a reasonable limit, but they still will yield not a single iota. In the end, they may increase quotas, beat down the prices or gain abatements from the USA. OPEC can stand small-scale (on OPEC’s level certainly) losses, but Russia won’t. Even rumors about a possible increase of oil quotas have produced an effect on the markets. Oil prices on electronic trades at the NY Commodity Exchange dropped by 1.7% to $27.36 per barrel already on Monday. After the OPEC conference in Osaka, the price may drop even lower.

Then, the adoption of the budget, schedules for foreign debt repayment, economic growth, restrained inflation, a stable ruble rate, and Russia’s economic ambitions as well will be frustrates. Dmitry Slobodyanyuk PRAVDA.Ru

Translated by Maria Gousseva

Read the original in Russian: http://www.pravda.ru/main/2002/07/30/44902.html

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