Russia on Tuesday indicated that it may cut oil production in tandem with Organization of
Petroleum Exporting Countries to support prices. Analysts, however, said Russia’s output is
likely to continue to fall, in any case, as producers cut capital spending.
Speaking on the sidelines of a conference in New Delhi, India, Russian Energy Minister
Sergei Shmatko said Moscow would actively coordinate with OPEC to determine production
levels and protect its interests as a major producer.
“(It includes) the exchange of information on market development and the finalizing of
investment programs. We can’t rule out cutting production as well,” Shmatko said.
OPEC member states meet Saturday to discuss lowering production, with oil prices now around
a third of the record levels they reached in July.
The cartel has already made two output cuts totaling 2 million barrels a day in separate
decisions in September and October. Venezuela, OPEC’s third-biggest producer, supports a
third cut.
“OPEC is discussing measures to protect the current oil market and reduce production,”
Shmatko said.
“Today, oil prices are not determined in a traditional way, that is, by demand and supply,
but influenced by the economic slowdown and speculation on hydrocarbons,” he said.
Russia asked to broaden its cooperation with OPEC at a meeting in Vienna earlier this year
and said during a recent visit to Moscow by OPEC Secretary-General Abdalla Salem El-Badri
that it may store some oil to buoy prices.
But with Russia’s oil output down 0.5% in the first ten months of the year to 9.8 million
barrels a day, and with further declines likely, such steps may not be necessary.
“The fact that Russia’s oil production is already in a decline comes in very handy for the
government,” said Chris Weafer, chief strategist at investment bank UralSib, which sees
Russian output falling 2%-5%, or up to 400,000 barrels a day, next year.
Indeed, companies like OAO Lukoil Holdings , TNK-BP Ltd. and OAO Gazprom Neft have all
reined in billion-dollar capital expenditure programs for 2009 as Russia grapples with its
worst financial crisis in 10 years and global crude prices hover around $50 a barrel.
Helping lift oil prices higher would improve Russia’s relationship with OPEC. But higher
prices are also vital for budget revenue and for Russia’s trade balance.
Russia’s 2008 budget is based on an average oil price of $70 a barrel, which, despite the
recent weakness, should be achievable.
But next year envisages $95 a barrel which, if not achieved, would put pressure on budget
spending and the ruble.
Shokri Ghanem, head of the Libyan National Oil Co., told Dow Jones Newswires Tuesday that
Russia had a very important role to play in determining oil prices. “It has a very good
stake in the market.”
Asked if there were ongoing talks between OPEC or its members and Russia over a joint cut,
he said Russia “has an interest” in coordinating with OPEC. “It’s normal there should be
contacts” between this country and the oil-producing cartel, he said.
But Ghanem said he didn’t know whether OPEC members would call on Russia to lower output.
“Members will share views on the market Saturday. We don’t know” what the outcome will be.