Russia defies Opec oil cartel

Outside help may not be forthcoming for Opec

As oil prices sink to two-year lows, Opec's hopes of patching together concerted oil output cuts have taken another blow.

Russia has said it will not scale back exports to help support plunging prices. Brent crude today fell to $16.80 a barrel, the lowest level since June 1999.

The oil cartel wanted non-members - notably Russia, Norway and Mexico - to agree a combined production cut of 500,000 barrels per day.

Non-Opec producers, 2000, million barrels per day

US: 7.7

Russia: 6.5

Mexico: 3.5

Norway: 3.4

Support from outside the cartel was a vital pre-condition of Opec's 14 November agreement to reduce daily output by 1.5 million barrels, but has proved difficult to achieve.

That prospect has now receded sharply, after Russian Prime Minister Mikhail Kasyanov said a reduction would not be forthcoming.

"We are not going to at any time reduce production on a big scale, it's impossible," Mr Kasyanov said.

Mexican and Norwegian dilemma

Earlier, the Mexican energy ministry said it was willing to cut by 100,000 barrels per day - but only as long as other nations joined in.

Norway has said it is studying the situation, but has declined to say how low the oil price would have to go before they cut production.

Norway's oil minister Einar Steesnaes told the BBC's World Business Report:"We want ... the price to rise to a more reasonable level, about $20 a barrel," a level that Opec is also targeting.

"If the price is still falling, we should cooperate with Opec countries and also with countries outside Opec to stabilise the price," he added.

Prices fall further

The Russian announcement has put further pressure on oil prices, which had fallen by one-third since 11 September even before Opec's meeting this week.

Mikhail Kasyanov: Cuts would be "impossible"

The falls stem from a huge excess of crude oil, caused largely by heavy production in recent years from the three main non-Opec exporters.

Meanwhile, demand for crude oil - especially in the United States - has taken a sharp knock since the global economy started to slow down earlier this year.

At the same time, oil traders have lost their faith in the ability of Opec to influence prices, largely because there are evident differences between members of the cartel.

Doubts over Russia

Mr Kasyanov's announcement is not the final word on Russia's reaction to Opec.

The Russian government has little influence over its oil industry, which is now in the hands of dozens of mainly privately-owned companies.

These firms may, it is hoped, impose production cuts on their own initiative.

"Russia still has time to take a concrete decision about reducing oil production," said Viktor Khristenko, Russia's deputy prime minister.

"Russia is continuing consultations with Opec members about the stabilisation of the oil market."

But achieving any kind of output cut would always have proved a challenge for Russia, which has no experience of enforcing the sort of quota discipline that has become the rule in Opec.