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The Times (UK)
31 December 2001
Doubts raised over Russia's commitment to oil cutback

OIL analysts are already questioning Russia’s commitment to reduce crude output in support of Opec’s move to cut its members’ quotas by a total of 1.5 million barrels per day (bpd).

Opec’s agreement, announced on Friday, is intended to lift the price of crude from below $20 a barrel to its minimum price target of $22. The move, supported across the Middle East, has raised concern in industrial nations over higher energy costs, particularly for motorists, at a time of slow economic growth.

Opec’s cut in output was made possible because a number of non-Opec nations, principally Russia, had also agreed to curb production. Russia is the world’s second largest exporter of oil after Saudi Arabia.

However, analysts and oil traders believe Russia’s decision to reduce exports by 150,000 bpd in the first quarter was designed to placate members of the Opec cartel without actually affecting the country’s output. Russian oil exports normally fall by between 100,000 and 150,000 bpd during the winter quarter as domestic demand rises sharply.

Thus the timing of Opec’s emergency meeting in Cairo on Friday allowed Russia to implement a “virtual” cut in output and push oil prices up.

Russian oil companies have also said they will increase output significantly next year. The companies, now privatised and operating with a greater degree of independence from the Government, have publicly supported the Opec deal while making plans to increase their own revenue through higher production.

Yukos, Russia’s fastest growing oil company, announced an intended 24.3 per cent rise in production. Sibneft, its rival, announced a 22-25 per cent increase, and Surgut has predicted 8 per cent growth.

But the Russian Government is of a different opinion. Oil accounts for up to 20 per cent of government revenue in Russia and 25 per cent of the country’s export earnings.

If the oil price fell to, say, $14 per barrel, the Government could lose up to $4 billion (£2.7 billion) in revenue.

Hugo Erikssen, director of Yukos’s international information department, said: “Yukos will comply with all decisions regarding oil exports in as far as they affect Yukos.”

However, there are ways of insuring against the effects of a short-term cut in exports. Opec is not demanding restrictions on refined oil products. Surgut plans to send any excess crude oil to Belarus, which is within Russia’s custom zone, meaning that it would not count as export.

Dmitri Avdeev, an oil analyst at United Financial Group, the Moscow stockbroker, said: “The volume of oil produced next year will increase, in spite of any cuts.”

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