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Wall Street Journal
November 26, 2001
Russia Threatens to Negate OPEC's Cuts As Oil Firms Insist on Continued Growth

MOSCOW -- Russia remains the last big oil producer in the world declining to promise cuts in its oil exports next year, a position that threatens to unravel an OPEC plan to reduce supply and bolster falling prices.

After meeting with Prime Minister Mikhail Kasyanov on Friday, Russia's biggest oil companies delayed a decision on whether to cut exports next year, saying they would study the issue further and meet again Dec. 10.

The companies stressed, however, that they had begun trimming exports by 50,000 barrels a day this quarter and would continue that cut until the end of the year. Analysts said the small reduction, representing 0.7% of Russia's output, happens each winter and doesn't mark a significant cut.

Russia, the world's second-biggest oil exporter, so far doesn't feel that a big export cut meets its interests because oil producers there have only just begun to boost production after a decade of decline, and they don't want to lose that momentum by shutting down wells.

The members of the Organization of Petroleum Exporting Countries grumble that Russia wants to seize more market share while leaving the tough job of supporting prices to OPEC. The group's Secretary General Ali Rodriguez on Friday urged all oil producers to act to prevent "what could be a catastrophe in the market later."

Leonid Fedun, vice president of Russia's No. 1 oil producer OAO Lukoil, said oil companies and the government so far believe it is better to be "poor and sick" amid low prices than "healthy and wealthy" amid high prices. "There's a firm belief that it's better to be poor and sick because it strengthens one's immunity," Mr. Fedun said.

Although some oil barons and analysts here say big Russian cuts are unlikely, Mr. Fedun and others aren't ruling out further reduction. Simon Kukes, president of Tyumen Oil Co., said he could support trimming exports by as many as 150,000 barrels a day. "We need more time to analyze supply and demand ... I hope by Dec. 10 at the latest we will make an announcement," Mr. Kukes said.

Brent crude, the European benchmark, fell 62 cents Friday to close at $19.28 a barrel. U.S. markets were closed for the Thanksgiving holiday. Oil prices have plunged by more than a third in recent months amid falling demand.

Norway to Heed OPEC's Request and Cut Back on Oil Production (Nov. 23)

OPEC earlier this month said its members would reduce output by 1.5 million barrels a day as of Jan. 1 if non-OPEC producers agreed to cut an additional 500,000 barrels a day. Norway, a big producer outside OPEC, agreed Thursday to cut production by as many as 200,000 barrels a day, depending on what Russia was willing to offer. Norway and Russia have to come up with 375,000 barrels a day to meet OPEC's demand, as Mexico already has pledged 100,000 barrels a day of cuts, while Oman, a small Persian Gulf producer, has offered to cut 25,000 barrels a day of output.

Mexican President Vicente Fox attempted to lobby Russian President Vladimir Putin's support for reductions in a phone call late Friday. Earlier this month, Mr. Putin said he favored allowing the market to determine Russia's export levels. On Friday, he advised Russian businessmen "not to panic" about oil-price gyrations. "If we can make the right decision, we will come out of all our difficulties in a strengthened state, not weakened," Mr. Putin said.

No one in the oil industry expects all the pledges -- by OPEC and non-OPEC alike -- to be fully redeemed. OPEC members already are cheating on their quotas by perhaps as much as a million barrels a day. In the past, Russia hasn't reduced output even after promising cuts. Norway's compliance has been difficult to ascertain, because the nation has used rescheduling of maintenance programs and theoretical reductions from growth plans to claim it delivered reductions.

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