Russia undecided on plan to avoid oil price war

Marielle Eudes, Agence France-Presse, Moscow

While Russia insists it will not give in to OPEC's demands for drastic oil exports cuts, it might seek a compromise that will allow the cartel to save face without harming Moscow's interests, analysts here said.

The world's second-largest oil exporter, after Saudi Arabia, mulled its oil strategy after OPEC Secretary General Ali Rodriguez, speaking after the organization's energy ministers met in Vienna Wednesday, called on Russia to make a "sacrifice" to help revive sluggish global prices.

Prime minister Mikhail Kasyanov replied swiftly that Russia "will not make a large reduction" in oil production as this would contradict aspects of Russian oil policy.

And he added Friday that no one had the right to tell Russia how much oil it should export, and that the drop in world oil prices "should be taken calmly" because it is not a trend but part of "market fluctuations".

But at the same time, deputy Prime Minister Alexei Kudrin insisted Thursday that talks with OPEC were ongoing and said that he thought that "a solution is possible after all".

Meanwhile, the price of oil sank below US$17 a barrel in London on Thursday for the first time in over two years, although it recovered slightly on Friday.

The fact that Russian government officials seemed to contradict themselves so blatantly, may simply be because they have not yet fixed on a strategy, analysts said.

"The government seems to be undecided on its plan of action and is able at this stage to make only vague and often contradictory statements," said Dmitry Avdeyev, an analyst with UFG investment bank.

"Russia is better served by oil prices at $18 per barrel than at $28 per barrel," said Roland Nash, analyst with Renaissance Capital investment bank.

The reason for this, Nash explained, was that exceedingly high oil prices would bring Russia large incomes and strengthen the ruble against other currencies.

That, in turn, would make importing foreign consumer and industrial goods cheaper and thus harm most Russian producers who do not belong to the oil sector.

Russia's main oil companies seem to be equally divided on the correct strategy, with number one Lukoil arguing that cooperation with OPEC -- even including output cuts -- is essential, while number two, Yukos, insists that the cartel's demands are "unacceptable" for Russia.