Russian oil cut a test, more may follow
Julie Tolkacheva, Reuters, Moscow
Russia's announcement on Friday of only small cuts in oil volumes this year and a delay in deciding about 2002 was a test balloon for the markets and OPEC and it might make further moves if pressured, analysts said.
"They are playing a game to see who blinks first...to see how the market reacts, to see how OPEC reacts and if it is all negative they will probably have another cut in the first two weeks of December," said Jim Henderson, oil analyst at Renaissance Capital.
The government, pressured by OPEC to cut oil exports to support flagging prices, said it and oil firms had decided to cut output and exports of crude by 50,000 barrels per day (bpd) in the fourth quarter. They will discuss measures for the first quarter of next year at the start of December.
The proposed measures are small compared with Russian production of seven million bpd and exports of three million.
Analysts said the decision was unlikely to satisfy OPEC, which has said it will cut 1.5 billion bpd from the New Year if non- OPEC states cooperated by offering a 500,000 bpd reduction. Norway has promised to cut 100,000-150,000 bpd if other states joined the effort while Mexico has pledged a 100,000 bpd cut.
Stephen O'Sullivan, oil analyst at United Financial Group, said oil exports tended anyway to fall in the winter, so Russia had missed a chance to make even a gesture of cooperation.
"Russia has a second bite of the cherry, they have a chance to dress up some output reductions that are going to happen anyway as a cut in support of OPEC," he told Reuters Television.
"They have a way of crafting still a face saving compromise that will allow everyone to cut from Jan.1," he said.
Russia has in the past offered to help OPEC with cuts in production and then has delivered nothing. But inaction this time would cause a rise in output rather than a freeze as most producers have ambitious expansion plans.
Henderson said also that at the next meeting Russia might cut 100,000-150,000 bpd if OPEC's reaction was very negative and the oil price fell below US$15.
If OPEC was slightly unhappy and the oil price was around $18, the lowest price on which Russia's 2002 budget has been based, Russia might offer another 25,000 bpd. "They are trying to get away with as little as possible," he said.
Konstantin Reznikov, oil analyst at Alfa-Bank, suggested Russia would in December cut by 100,000 bpd, which with 50,000 bpd would amount to 150,000 bpd, to everyone's satisfaction.
Analysts also said that the oil debate was taking place on a backdrop of diplomatic and industrial considerations.
Valery Nesterov, an oil analyst with Troika Dialog, said Russia was being careful on supporting OPEC as it wanted to boost ties with the United States, which has been an opponent of the cartel but an ally of its leading member, Saudi Arabia.
He said Russian oil firms were trying to have a stronger role in supplying Europe with energy, and that dependence on OPEC decisions could undermine this aspiration.
"The interests of Russia and the West can coincide here (in Russia being an independent source of energy) and then the West would be more interested in investing in Russia as a source where it gets energy from," he said.