Russia Falls Short of OPEC Output Curbs

OPEC’s messy squabble with its rivals intensified Friday as Russia, the largest petroleum producer outside the oil cartel, said it will reduce production by just 0.7%, significantly less than OPEC wants to bolster worldwide oil prices.

Oil prices fell 3% in London in reaction to Russia’s announcement that it will curb fourth-quarter production by 50,000 barrels a day, which is a larger cut than the previous plan to pump 30,000 fewer barrels daily. The 11-nation Organization of the Petroleum Exporting Countries wants Russia to cut 200,000 barrels a day, a proposal Russia is rejecting.

Although Russia delayed until Dec. 10 a decision on next year’s production, analysts doubt the government will budge much because it hopes to gain market share and be seen as a reliable supplier of energy to the world.

“Russia will adjust a little to keep prices at current levels, but they’re not going to adjust much,” said energy economist Philip K. Verleger Jr.

“If they succeed in stabilizing the oil market at the high teens, Russian can come out looking like the strongman against OPEC--and OPEC doesn’t have many friends in the West,” he said.

Brent crude, the European benchmark, slipped 62 cents Friday to close at $19.28 a barrel on the International Petroleum Exchange.

U.S. oil markets were closed Friday for the Thanksgiving holiday. Oil prices have fallen nearly 40% in the last six months because of slumping demand.

OPEC said it would slash production by 1.5 million barrels a day starting Jan. 1 if large non-OPEC producers took an additional 500,000 barrels a day out of the market. The non-OPEC nations of Norway, Mexico and Oman have committed to a cut of about 300,000 barrels, but Russia has resisted OPEC’s call.

Russian oil production has grown by 7% this year to 6.9 million barrels a day, while OPEC, which pumps about one-third of the world’s oil, has reduced production by 3.5 million barrels a day. Russia’s exports are just 800,000 barrels less than Saudi Arabia’s, the biggest OPEC producer.

President Vladimir Putin made a decision on Sept. 11 “to step forward as a supplier of oil and gas to Europe and to get closer economically to the United States,” said Joseph Stanislaw, president of Cambridge Energy Research Associates.

The attempt by Russia to pursue such a policy could provide an offset to the oil power of OPEC, particularly to Saudi Arabia and other oil-rich states of the Middle East.

Russia’s proven oil reserves today, at about 48 billion barrels, are only about one-fifth of Saudi Arabia’s. But “Russia and the Central Asia republics of the old Soviet Union may hold reserves of oil and gas many times those of the Middle East,” said Joseph Tovey of Tovey & Co., a New York investment banking firm specializing in energy issues.

Developing the reserves of Russia will take major investments by world oil companies and other governments. Putin has initiated the new Russian policy with an eye for such investments, analysts say. The Russian president is looking for economic ties not only in oil but in other industries as well. “He wants close economic ties with the West,” Stanislaw said.

However, for Russian oil and gas to be developed, oil prices would have to be “at about $25 a barrel over the long term,” Tovey said. “He is not following a cheap-oil policy but temporarily keeping oil flowing to put the West--and the Middle East--on notice that Russia will be a reliable supplier.”