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Wall Street Journal
December 17, 2001
OPEC, Russia Are Moving Back To Stalemate Over Output Cuts

OPEC and Russia are edging back toward the brink of a price war.

Russia has pledged to cut its oil exports by 150,000 barrels a day to meet demands by the Organization of Petroleum Exporting Countries that non-OPEC producers join the cartel in reducing output to prop up crude prices.

But senior OPEC officials unconvinced Russia really intends to act, now say there's an even chance that the cartel won't cut production Jan. 1, as has been expected. OPEC previously said it would cut 1.5 million barrels of oil a day from world markets, but only if non-OPEC producers undertake a sustained cut of 500,000 barrels a day.

Senior OPEC officials say they aren't satisfied with the details Russia is providing about its cuts, in particular, what actual production will be and how long the reductions will last. Underscoring this concern, OPEC members are considering a late December meeting in Cairo, to coincide with a meeting of the Organization of Arab Petroleum Exporting Countries.

"Time is becoming critical," said Adnan A. Shihab-Eldin, OPEC's chief economist.

Though OPEC produces about 40% of the world's oil, it is worried about losing market share to Russia, which produces more than seven million barrels a day and is expected to add another one million barrels a day in the next few years.

Russia's oil exports normally dip in the winter, when the country needs more fuel to heat homes, and OPEC officials doubt Russia's cuts will last through the spring.

Russia, the world's second-largest producer, first said its cuts would apply only to the first quarter. But during a visit to Canada last week, Prime Minister Mikhail Kasyanov said they could be extended to the second quarter.

Two of Russia's oil companies say the country's cuts will be made from third-quarter export levels, when Russia's exports are at their peak, making the cuts less painful than from fourth-quarter volumes.

But senior OPEC officials say Russia's plans are vague, and communication between the two has faltered. The situation is especially tense between Russia and Saudi Arabia, the world's largest oil producer and OPEC's most influential member, and the two are said to be in contact only through third parties.

Still, OPEC is nearing its goal of winning reductions of 500,000 barrels a day from non-OPEC producers. Mexico, Oman and Norway have agreed to cut output. On Friday, Angola pledged to slice 22,500 barrels a day from its exports.

Oil prices closed higher Friday, as traders saw the news as pushing OPEC toward a January cut. The U.S. benchmark crude oil for January delivery closed at $19.23 (21.27 euros) a barrel, up $1.11 on the New York Mercantile Exchange. But obstacles remain. Norway has pledged to cut between 100,000 barrels a day and 200,000 barrels a day, with a decision likely before Christmas. But OPEC officials say Norway is waiting for further details from Russia before committing.

Nor is Russia sending signals that it necessarily wants to work with OPEC. On Friday Prime Minister Kasyanov, visiting Venezuela, an OPEC member, said Russian oil policy would be decided independently of other nations.

Statements from Russia's independent oil producers also have OPEC worried. Mikhail Khodorkovsky, head of OAO Yukos, says his company intends to push ahead with a 12% increase in production next year, and also suggests Russian oil companies will increase exports of oil products to offset the cut.

OAO Sibneft, meanwhile, said it would boost its output next year by 22% next year, to 495,000 barrels a day.

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