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23

Does OPEC's move signal a price war?

The Wall Street Journal -In agreeing not to cut production even as oil prices fell, OPEC was responding to U.S. pleas to keep prices down. But the group had another motive: To warn Russia that OPEC is willing to engage in a market-share battle that could lead to a price collapse.

The Wall Street Journal -In agreeing not to cut production even as oil prices fell, OPEC was responding to U.S. pleas to keep prices down. But the group had another motive: To warn Russia that OPEC is willing to engage in a market-share battle that could lead to a price collapse.
Russia's oil output has surged this year by about 500,000 barrels a day, while the Organization of Petroleum Exporting Countries has slashed its production by about 3.5 million barrels a day. Next year, output from Russia, the world's second-biggest petroleum producer, is expected to rise an additional 350,000 barrels to more than seven million barrels a day, bringing its output near that of world leader Saudi Arabia.
OPEC is increasingly concerned about losing market share to Russia, especially as demand for oil slows along with the world economy. The group would like Russia to join other non-OPEC oil producers, such as Mexico and Norway, that in the past have agreed to scale back exports to help keep prices solidly above $20 a barrel. Russian oil minister Igor Yusufov rebuffed demands from OPEC counterparts to restrain production.
And at OPEC's formal meeting here last week, Russia, which has observer status with the organization, refused to sign a joint declaration.
The last time world oil producers tussled in a market-share battle prices
collapsed to as low as $11 a barrel in 1997. Only a joint agreement between Saudi Arabia, Venezuela and Mexico in early 1999 turned prices around.
Now OPEC ministers are deriding Russia as a freeloader that is profiting at
OPEC's expense. "They can't go on like this," said Rilwanu Lukman, the Nigerian oil minister who is due to take over as OPEC's president at the start of the year.
OPEC President and Algerian Oil Minister Chakib Khelil said that Russia's rise in exports during OPEC's recent production cuts has yielded Moscow some $5 billion in additional annual revenue. "Russia hasn't paid for that," he said.
While everyone will lose if prices collapse, Mr. Khelil said Russia stands to
lose more than most because its oil is expensive to produce and it relies
heavily on natural-gas exports that are linked to the price of oil.
The Russians say OPEC's request to restrain production took them by surprise. "It was very sudden for us," said Alexander Misyulin, a senior Russian energy ministry official here for the OPEC meeting. "We didn't come here with a mandate or instructions." He acknowledged that "OPEC is now in a very difficult position," but he said energy exports account for half of Russia's federal budget.
While they battle behind the scenes, OPEC ministers are promising publicly
that they will cut oil production even before their next scheduled meeting in November if oil prices don't recover. Those comments have caused prices to climb slowly, with the U.S. benchmark rising 69 cents on Friday to close at $23.43 a barrel after tumbling as much as $10 a barrel in the days that followed the Sept. 11 terrorist attacks.
But privately OPEC ministers say they are loath to make additional cuts,
putting the organization in a bind as the global downturn intensifies. Indeed, even with higher prices, further cuts could result in unacceptable revenue losses, which could trigger more cheating on oil-output quotas.
"Then you're right back in 1997," said Shokri Ghanem, former chief economist for OPEC.
Wall Street journal
Neftegaz.ru