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Tuesday, 12 March, 2002, 15:07 GMT
Opec: Playing Russia's oil game
Oil pump
Russia is the second largest oil exporter in the World
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By Alexander Koliandre
BBC News Online

Oil prices have almost returned to their pre-September level amid market fears raised by US military action against Iraq, one of the world's leading oil producers.

The composite "basket price" of Opec crude oil, used by the cartel to monitor the market, was $22.44 per barrel on Monday - at the lower end of its target range of $22-$28 for the first time since last September.

However, the International Energy Agency (IEA) said on Tuesday that, despite the rise in prices, overall demand for oil is still lagging behind economic recovery in the US.

The agency said it shaved its forecast for growth of global oil demand by 80,000 barrels per day to 420,000.

This brings the world's current total demand to 76.4m barrels a day.

"Upward revisions to US data may fuel heightened optimism about the health and prospects of the global economy, but the implications for oil demand are not so bullish," the IEA's report said.

Opec's battle for Russia

No wonder then that Opec, preparing for its meeting in Vienna on Friday, is trying to persuade non-cartel countries, which account for 63% of the world's oil output, not to increase their exports.

While the cartel hints at maintaining its current level of production or even cutting it, possible defiance from Russia looks to be one of its main concerns.

Russia's pledge to curb oil production in the first quarter of 2002 by 150,00 barrels per day was instrumental in averting a price war threatened by Opec, and in securing production cuts from cartel members themselves.

As the second quarter approaches, the cartel is trying to persuade Moscow to keep to its current quotas.

Venezuelan energy minister Alvaro Silva, who arrived in Moscow on Monday, said he was confident Russia would support Opec's export curbs into the second quarter.

No promises

But neither him, nor Opec secretary general Ali Rodriguez and the cartel's president Rilwanu Lukman, could secure a firm pledge from Moscow, which has limited itself to a promise of a "future cooperation" with the organisation.

Opec's president Rilwanu Lukman
Opec failed to secure a firm pledge from Moscow
Russia said that it was not ready to respond to Opec's demand for a continued squeeze on Russia's oil exports into the forthcoming months.

Russia's officials fear that cutting output now would lead to the country losing market share and put an unsustainable pressure on its budget.

The country's revenues are strongly dependent on oil exports and as huge repayments of the state debt - scheduled for 2003 - approach, Moscow doesn't want to see a steady flow of much-needed hard currency dry up.

On the other hand, Moscow, doesn't want to start a price war with Opec by rebuffing the cartel's requests outright.

Export rises amid promised cuts

Russian oil companies have invested heavily in production and started to increase output significantly in the second part of 2001.

Analysts say that even if Russia makes a commitment to continue curbs beyond March, it will not mean too much in practice.

"Russia's logic will be to verbally commit and then turn a blind eye on real volumes of exports," the head of Moscow-based international Petroleum institute, Yevgeny Khartukov, said.

Unlike the majority of Opec countries, Russia's oil industry is mainly private.

Russian oil tanker
Russian oil companies are using all possible means of export
The government, which owns the pipelines to the West, is only able to control the main route of the exports.

It said the volume of oil, running out of the country through the pipeline, is roughly equal to the cut that was promised to Opec.

But the oil companies have proven to be rather inventive in using alternative means of export - from railroads to sea tankers.

Russia's largest oil company Yukos reportedly shipped an equivalent of 100,000 barrels per day - two-thirds of a promised cut - via Ukraine's port Feodosia.

Baltic ports of Tallinn and Ventspils also saw a surge in crude oil transit, and at least two large tankers were loaded in Russia's Black Sea port of Novorossiisk in January.

In addition, analysts in Kiev said that a re-export of Russian oil through neighbouring Ukraine and Belorussia rose during the winter.

And the government's decision to lift fuel oil exports quotas paves the way for an even higher jump in export volumes.

Fighting for market share

The International Energy Agency said on Tuesday that oil exports from the former Soviet Union were up 940,000 barrels per day in February, despite Russia's promise to cut exports in the first quarter.

Exports from the region was at the second highest level on record in February at 5.08 million barrels per day.

IEA did not publish separate data for Russia, but the country usually accounts for up to three-quarters of the exports from the region.

However, Moscow has denied any allegations of not observing the export cut and is providing a high-profile welcome to the Opec's top brass.

The BBC's Andrew Walker
"I don't think they (OPEC) are going to restore the output cuts they made last year"
See also:

08 Mar 02 | Business
Opec: The oil cartel
07 Mar 02 | Business
Opec's fading power
18 Jan 02 | Business
Opec's grip on oil market weakens
04 Mar 02 | Business
Russia defies Opec pressure
16 Nov 01 | Business
Russia's threat to Opec deal
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