OPEC Gains Backing; Oil Prices Jump
World oil prices leaped Thursday as hopes grew that independent producers are close to meeting OPEC’s demands on export curbs to defuse the threat of an oil price war.
Norwegian Oil Minister Einar Steensnaes said Norway was willing to slice production to help the OPEC cartel, and Russia’s deputy prime minister said Moscow also was ready for action to help prices hurt by an economic downturn.
London Brent crude futures ended $1.12 a barrel higher at $19.85, up more than $3 from Monday’s 21/2-year low.
Speaking to reporters after briefing parliament, Norway’s Steensnaes said: “The government has decided that if OPEC and non-OPEC countries carry out cuts, then I have got a mandate to carry out cuts of 100,000 to 200,000 barrels” a day.
“The size of the cut will depend on the market situation and what the other countries involved are deciding on,” Steensnaes said. “That gives us flexibility.”
Russian Deputy Prime Minister Viktor Khristenko said Moscow now was prepared to make a bigger effort to back OPEC and reduce supplies.
“We are ready for this, and these efforts should lead to a stable and fair level of prices for oil beginning from the new year,” Khristenko said. Russia’s view of fair prices was a range of $20 to $25 a barrel, he said.
Russia’s oil industry is largely controlled by private companies. They will meet with Prime Minister Mikhail Kasyanov today to discuss policy.
“We think the government will take a decision to cut output in volumes enough to stabilize the market,” said Leonid Fedun, the deputy head of leading Russian oil company Lukoil.
A Russian promise for a deep output cut would represent a political coup for OPEC, which set tough conditions last week for rival independent producers to trigger a cut in production by members of the cartel.
The Organization of the Petroleum Exporting Countries said it would make good on plans for 1.5million barrels a day of cuts only if non-OPEC producers Russia, Norway, Mexico and Oman together delivered 500,000 barrels a day of reductions.
Mexico and Oman already have made firm commitments of 125,000 and 25,000 barrels a day, respectively.
“Every dollar on the crude price is worth an extra $2.3 billion to Russian export revenues of crude, petroleum products and natural gas,” said Gary Ross of New York consulting firm Pira Energy.
“That’s a pretty compelling case for Russia to cooperate, which now looks likely, and if that happens it means oil prices are going higher.”
Another key development Thursday was a change of mind by Mikhail Khodorkovsky, head of Yukos, Russia’s second-largest oil company, who said he now believed a decision could be reached to suit both OPEC and the independent producers.
“That was key because Yukos was the Russian company most opposed to a production cut,” said Lawrence Eagles of GNI Research.
Simon Kukes, president of Tyumen Oil Co., said a cut in Russian exports of 100,000 to 150,000 barrels a day was possible. Whether that will prove enough to reach the 500,000 required by OPEC for the four nonaligned nations remains uncertain.
OPEC, which had successfully managed the market with a series of production adjustments since prices crashed to below $10 in late 1998, has watched oil take a beating in recent weeks from weak demand because of world economic malaise.
OPEC Secretary General Ali Rodriguez said he was confident of a price-boosting deal.
He said the 11-member cartel would await an official response from the independent producers before triggering OPEC’s cuts, expected to begin in January.
That would be enough to push prices for a basket of OPEC crudes into the lower end of OPEC’s preferred $22-to-$28-a-barrel range from $17.44 on Wednesday, Rodriguez said.
Benchmark Brent crude slipped to a low of $16.65 on Monday but has averaged $25.50 year to date.
