Posted on 03/14/2002 7:18:45 PM PST by Shermy
Deputy Prime Minister Viktor Khristenko said Wednesday that the government had agreed in principle to support OPEC by limiting crude oil exports until June, although analysts and traders said transport loopholes meant the assurances rang hollow.
Russia, the world's second-biggest oil exporter, agreed in December to cut exports from Jan. 1 to help the Organization of the Petroleum Exporting Countries boost flagging prices in the first quarter, and the cartel is anxious to secure a promise the curb will extend to the second quarter.
Khristenko said the final schedule would be agreed with oil firms next week.
"The technical breakdown of oil exports between oil firms maintains the export volumes of the first quarter, that is a cut of 150,000 barrels per day," he said after a meeting of the government commission on access to oil pipelines.
"The final decision on the second quarter is to be made by [Prime Minister Mikhail] Kasyanov," he said. "The meeting will take place approximately in a week."
Traders and analysts said the export schedule was irrelevant as even in the first quarter Russian oil firms managed to sidestep the OPEC agreement by exporting more crude by rail and ramping up exports of oil products.
Russia says its deal with OPEC applies only to exports through the state-owned Transneft pipeline and that it does not touch on refined products.
"This is a purely verbal commitment and a cut on paper, all it does is avoid another conflict with OPEC," said Vladislav Metnyov from Renaissance Capital.
Output is set to increase 5 percent this year from 7 million bpd in 2001. The excess volume can only flow abroad as the domestic market is saturated.
Metnyov said he believed Russia's mostly private oil firms would find new ways to bypass Transneft in the second quarter if the government decides to tighten its grip on supply curbs.
"Firms will be able to hide the reality until the end of June, when the crude export growth trend in Russia will become absolutely clear," he said.
Russia exported 3 million bpd of crude last year.
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And here's an article from Agence France Presse:
Russia and OPEC avoid conflict, but for how long?
Russia has avoided ruffling OPEC's feathers before its gathering in Vienna on Friday and could even keep a lid on its oil exports for a few more months but everything is pushing Moscow to open the taps again.
OPEC, the powerful oil producers' cartel, has stepped up its visits to Moscow this month before the Vienna meeting, expected to keep output quotas unchanged until the end of June, in a bid to convince Russia to help support crude prices.
Russian business daily Vedomosti reported on Wednesday that the government was preparing a resolution fixing the level of oil exports for the second quarter at a level "barely superior" to the first three months of the year.
Russia, the world's second-largest oil producer and top non-OPEC oil exporter, late last year grudgingly signed up to an export cut of 150,000 barrels a day (out of a total output of 7.2 million bpd) after weeks of brinkmanship.
But it refused to commit itself beyond January 1 to March 31 this year.
For the second quarter, OPEC has already secured the support of the other major independent producers, Norway, Mexico and Oman, but Russia has stayed on the sidelines, delaying its decision until the end of March.
The mainly Arab oil grouping has chosen to interpret that as a potential willingness to collaborate.
The two sides, by mutual agreement, have refrained from undiplomatic statements which could unsettle the markets just as world oil prices have shot up on worries about US-led military action against Iraq.
But Vedemosti's report met with scepticism among analysts.
"Those of us watching Russia closely sense that (extending its commitment to trim exports by a further three months) is unlikely indeed," said Adam Landes from Renaissance Capital brokerage.
Christopher Weafer from Troika Dialog bank added: "Russia will not make any official commitment and will avoid any announcement. In reality, it is doing nothing to restrict its sales abroad as it has no choice but to increase exports."
Several Russian oil majors (Yukos, Sibneft and Surgutneftegaz) have invested heavily in recent years and forsee a strong rise in their output in 2002 "but the domestic market is saturated," Weafer pointed out.
The drop in Russian oil exports has produced a glut of crude on the domestic market, forcing prices down and causing a sharp drop in revenue for producers and tax receipts for the government.
At the highest official level, it is regularly stressed that it would be better to sell more oil at a lower price rather than the contrary and to regain market share lost over the past decade.
"OPEC members do not respect" their quotas and new players such as Kazakhstan are taking advantage of the Russian export curbs to increase their sales, Andrei Illarionov, economic adviser to President Vladimir Putin, said in an interview with weekly Itogi.
Russia is all the more tempted to step up oil exports since prices have recovered to six-month highs of around 23 dollars a barrel and the US economy is showing signs of improvement.
Russia's oil production increased by six per cent in January compared to a year earlier, rising to 7.23 million barrels a day.
"We are expecting a rise of more than 25 per cent in exports this year, to 3.9 million bpd" from three million bpd in 2001, Weafer said.
An advantage for both Russia and OPEC in playing the cooperation game in public is that it may dissuade our lesser economic analysts from appreciating the true market, delaying a "market" reponse of lower bid prices to the higher outputs. I don't think it will last long.
BTW, www.opec.com is very informative. Surprisingly the news heavily covers exploration and event in non-OPEC regions, such as Florida and Australia. They like Greenpeace too. Actually, this isn't surprising in the least when one thinks about competition.
Here's a link to a story showing many OPEC nations cheated on the recent cutbacks.
And I don't blame them. If my only source of income was oil I'd be wondering about my retirement.
<3/18 Moscow Times: "Yukos Official: Vow to OPEC to Be Ignored"
Reuters NEW YORK -- A Yukos official said last week the Russian government will allow oil firms to increase production even if Moscow extends its deal with the OPEC cartel to limit exports.
"We don't think they will [extend cuts]," said Ray Leonard, director of new projects at Yukos, Russia's second biggest crude producer, accounting for 17 percent of the nation's output, according to the company's web site. "While they may not say no to OPEC right to their face, they're just going to let the companies move forward."
Yukos still plans to increase production by 20 percent this year, Leonard said, speaking to reporters in New York on the sidelines of a conference on investing in Russia.
The company's output "will be about 1.4 million barrels per day on an average. We started at 1.25 and will end up about 1.55 [million bpd]," he said.
Traders and analysts said even in the first quarter Russian oil firms managed to sidestep the OPEC agreement by exporting more crude by rail and ramping up exports of oil products.
A shift to refined product output would be the Yukos strategy, "if we're limited on the export of crude oil," said Leonard.
Russia says its deal with OPEC applies only to exports through the state-owned Transneft pipeline, and it does not touch on refined products.
Stephen O'Sullivan, head of research at United Financial Group, said that even if Russia agreed to extend output cuts, "I don't believe they will be kept and the market should not be pricing that in."
He said production growth has replaced price level as the key "profit determinative."
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We've known here at FR that Russia will cheat (like OPEC) and will go for market share. This O'Sullivan guy is the first American I've heard who understands this - the business press almost to a "t" follows the Russia cooperating with OPEC line.
The so called business press and of course the mainline left wing fish wraps bow and pray to Mecca at least 6 times a day. This is to keep all of us believing that the Opecker Oil Cartel is strong, viable and all controlling re oil production and sales! Then, the Saudis and Kuwati Princes will buy expensive two and four page multi colored ads from these Islamitutes to show how great the Opecker nations is to America!
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